Impairment

Impairment is a write-down of an asset's carrying amount to its recoverable amount when the asset's value has fallen below its book value; the loss is recognised immediately in the income statement.

ByHoang TruongUpdated July 2, 2026

See it move

Loading infographic...

A retail chain carries a store lease at €2,000,000, but a downturn reduces its expected future cash flows to a present value of just €1,400,000. The €600,000 gap must be recognised immediately as an impairment loss in the income statement, cutting both operating profit and the lease's balance-sheet carrying amount that same period.

Where it fits

SubjectFinancial AccountingAdvancedTopicAsset Measurement & ValuationAdvanced

The formula

LaTeX

\text{Impairment loss} = \text{Carrying amount} - \text{Recoverable amount}

Variables

$C A$: Carrying amount (book value of the asset before impairment) (€)
$R A$: Recoverable amount (higher of fair value less costs of disposal and value in use) (€)

Recognised immediately in the income statement when carrying amount exceeds recoverable amount.

LaTeX

\text{Recoverable amount} = \max(\text{FVLCD},\ \text{VIU})

Variables

$F V L C D$: Fair value less costs of disposal (net amount realisable in an arm's-length sale) (€)
$V I U$: Value in use (present value of future cash flows the asset is expected to generate) (€)

Taking the higher of the two avoids writing the asset down below what it can actually recover.