What Are Impaired Assets In Accounting

Impaired Assets are those Assets which have less fair market value than carrying value / book value shown on the Balance Sheet when we test these Types / Kinds of Assets for Impairment. Examples are Fixed Assets / Non Current Assets, Intangible Asset such as Goodwill and Current Asset like Accounts Receivable.

Due to Physical Usage, Obsolescence, etc. the recoverable amount or fair market value of assets decreases as compare to carrying value so Impairment Loss is recognized in Income Statement in such accounting in which it is incurred.

Impairment Assets Journal Entry

In case of Impairment of fixed assets, the Journal Entry would be as shown below:

                                        Impairment Loss a/c  XXX

                                       Accumulated Depreciation a/c  XXX

                                                                                      Asset a/c  XXX

                               (Impairment Loss On Asset Recognized For The Accounting Period)

For Example, If building has cost Rs. 900000, Carrying Value is Rs. 450000 (900000 - 4500000) Accumulated Depreciation for 5 Years is Rs. 450000. The Fair Market Value of buildings declined to Rs. 400000 due to flood across the building, then what is Impairment Loss and what is journal entry to record in the Journal Or Book of company’s business.

As we know that:

Impairment Loss = Fair Market Value / Recoverable Amount - Carrying Value

                                             =  400000  -  450000 = Rs. (50000)

Now, we record the following entry as shown below:

      Impairment Loss a/c  50000

      Accumulated Depreciation - Building a/c  450000

                                                                         Building a/c 500000

                                                  (Impairment Loss On Building Recognized)

Impairment Loss is recorded on the Income Statement and building account is also reduced with an equal amount of Impairment Loss on balance sheet.