Impairment Meaning

If one look in the dictionary meaning of impairment then he or she will find it means destruction. In finance terminology impairment is used in the context of both assets and capital, when the share capital of a company reduces below the par value then it is called impairment of capital and it is not a good signal for both company and its shareholders because it signals bad management and gloomy future for a company.

In case of assets when the utility of plant and machinery decreases due to reasons like innovation of some new technology which makes current method of production obsolete than it is called impairment of assets and they are written off in the books of accounts accordingly.

1 comment… add one

  • Garima

    Please tell the impact of impairment of assets on the balance sheet and how it is dealt with.

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