Term · Balance Sheet & Debt
Impairment
In briefAn impairment is the unscheduled write-down of an asset once its recoverable amount falls below its carrying amount. For project-based small caps such as explorers it is a clear warning sign as soon as a project loses some of its original value.
Definition
Unscheduled write-down of an asset when its recoverable amount has fallen below its carrying amount.
How it is calculated
Formula. Impairment = carrying amount − recoverable amount (the higher of value in use and fair value less costs to sell).
Why it matters for small caps
For project-based small caps (e.g. exploration) it is a key warning signal when a project loses its original recoverable value.
Common misreadings
- An impairment is often dismissed as a pure accounting effect, although it usually signals a real deterioration in business prospects.
In the process
Frequently asked
What is an impairment (write-down)?
It is the reduction of an asset's carrying amount to its lower recoverable amount. The trigger is a lasting deterioration in value.
How is an impairment determined?
You compare the carrying amount with the recoverable amount, i.e. the higher of value in use and fair value less costs to sell. The difference is written down.
Why is an impairment more than an accounting effect?
It is often dismissed as a purely accounting figure, but it usually signals a real deterioration in business prospects. Especially for project values this should be taken seriously.
Related terms
Sources
Primary
IFRS Foundation – IAS 36 Impairment of Assets
https://www.ifrs.org/issued-standards/list-of-standards/ias-36-impairment-of-assets/
https://www.ifrs.org/issued-standards/list-of-standards/ias-36-impairment-of-assets/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.