What is an impairment?

Impairment is an accounting concept that occurs when the cash flows generated by an asset (or group of assets) change in a negative manner. Take a large restaurant chain as an example: if during the pandemic, they were forced to close indoor dining at one of their restaurants the associated cash flows generated by that restaurant would drastically differ from pre-pandemic volumes.

When this occurs a company is required to perform various tests to ensure that the fair value of the asset (or group of assets) has not been significantly impacted by the decrease in generated cash flows.

If the results of the underlying tests reveal that the asset (or group of assets)’s value has fallen below its carrying value then an impairment for accounting purposes has occurred and the asset (or group of assets) value must be reduced to its new fair value for the underlying asset or assets.

For further guidance on impairments under please see our in-depth article.

To enter an impairment in Occupier, refer to this article.