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What Is an Impairment Loss?

An impairment loss is a loss recorded when the profitability of a fixed asset or goodwill has declined below what was originally expected and the prospect of recovering its book value has become slim.

What the item represents

An impairment loss is recorded as an extraordinary loss on the income statement when the book value of a fixed asset or goodwill exceeds the recoverable amount — the income it is expected to generate in the future — with the difference recognized as a loss.

Points to watch when reading it

An impairment loss often arises as a result of reassessing a past investment or acquisition. Checking its amount and which business it relates to can help you understand the background behind that company's earlier investment decisions.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

When does an impairment loss occur?
It is recorded when the likelihood of recovering the investment in a fixed asset or goodwill is judged to have deteriorated significantly, as an adjustment that writes the book value down to its actual recoverable amount.
Does recording an impairment loss reduce a company's cash?
An impairment loss is an accounting entry that writes down the book value of an asset, and it does not involve a cash outflow at the time it is recorded. That said, it can be viewed as a signal that a past investment did not perform as originally planned.

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