What is Impairment In Accounting

Impairment is a gradual and permanent decrease in the recoverable amount or fair market value of Fixed Assets / Non Current Assets when it is compared with carrying value / book value of fixed assets. It is created when we test whether the carrying value exceeds the recoverable amount, which is a benefit for the company’s business by using it or by selling to the market that is a fair market value, or not.

Calculation

As mentioned above, if carrying value exceeds the recoverable amount, then there is impairment of fixed assets which is recognized as Impairment Loss (IL) which is calculated as shown below:

Impairment Testing Formula or IL Formula:

IL = Carrying Value - Recoverable Amount

Impairment Is What Type Of Account?

It is a Contra Asset Account as it is deducted from relevant assets 'closing balances on Balance Sheet.

Impairment Of Intangible Assets Journal Entry

                                                    IL a/c  XXX

                                                           Intangible Assets a/c XXX

                                      (Impairment On Intangible Assets Recorded)

IL is recorded in Income Statement and it also reduces the balance of Intangible Assets on balance sheet.