Impairment and Valuation of Assets
What is the impact of impairment on the valuation of assets?
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Anonymous
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The Effect of Impairment on the Value of an Asset
An impaired asset has a market price less than the value listed on a company's balance sheet. Upon adjusting an impaired asset's carrying value, a loss is recognized on the company's income statement.
An impairment should only be recorded if the anticipated future cash flows are unrecoverable.
The total dollar value of an impairment is the difference between the asset's carrying cost and the market value of the item. Upon (after) writing off the impairment, the asset now has a reduced carrying cost because the adjustment recognized a loss and reduced the asset. In future periods, the asset must be reported at carrying cost.
Accounts that are likely to be written down are the company's goodwill, accounts receivable and long-term assets in case their value turns out to be lower than expected earlier.
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