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Accounting
Impairment
Writing down the value of an asset on the balance sheet when its carrying amount is higher than its recoverable amount.
Impairment testing is required under IFRS and GAAP when there are indicators of loss in value (market decline, poor performance, etc.). It prevents balance sheets from overstating assets. Once impaired, the asset usually cannot be written back up later (except in specific cases under IFRS).
It's admitting that the expensive machine you bought is now worth less than you thought and officially reducing its value in the books.
Real world: A retailer buys a store for £10 million. Due to changing shopping habits, the store's recoverable value drops to £6 million. The company records an impairment loss of £4 million, reducing both the asset value and reported profit.
💡 Impairment is the honest (and sometimes painful) recognition that an asset has lost value.