Asset Impairment

Asset impairment is when a company's assets drop in value due to various factors such as changes in the market, technological advancements, or other external factors. When an asset's value decreases, it may no longer be worth what the company originally paid for it. This can ultimately impact a company's financial statements and may require the company to adjust the value of the asset on their balance sheet.

To account for impairment in your accounts, you will need to access the specific asset in question from the detailed asset register. Once you have done so, select the "Impairment" button from the action menu, which will prompt a form to drop down for you to fill out.

After clicking on the "Add Item" button, you have the option to choose the asset item from the drop-down menu. If there are multiple items involved in the impairment, you can add all of them using the same form.

The impaired value (loss) referred to in the form is the difference between the book value of the asset and the “new market value” which is appraised by an expert, such as a valuer. It is important to accurately input the impaired value in the form to ensure the new market value is correctly stated per the valuation.

Once you submit the formal impairment request, it will be sent to the approver for review and approval. Upon approval, the impairment will be recorded in the detailed asset register. Please note that the impairment value is not deducted from the original cost of the asset, which remains intact. Instead, the impaired value is credited to the "Accumulated Impairment" account, and both the accumulated impairment and outstanding accumulated depreciation are deducted from the original cost to determine the asset's new market value, also known as the net book value. This method ensures that the historical data of the asset is preserved.

To record the accounting entries, you can debit the impairment loss and credit the accumulated depreciation of the relevant asset class. This can be done through the Action menu in the detailed asset register.