15 December 2008
An impaired asset is a condition in which an asset's market value falls below its carrying amount and is not expected to recover. This means that an asset's market valuation is less than the book value of the asset and the future cash flows to be generated from the asset are less than the net difference of the market value and the book value of the asset. At this point it becomes necessary to write down the value of the asset in the books by debiting a loss account (which will show up as an expense in the income statement) and crediting the respective asset account. This is a common occurrence for goodwill where a company will purchase another company for more than the value of the net assets of the target company. Under US GAAP, goodwill is tested annually for impairment.
CAclubindia
