Impaired Asset

Impaired Asset: An impaired Asset is a long-term Asset whose market value has fallen below its carrying value on the balance sheet, indicating that it may not be recoverable through future Cash Flows. This situation often requires a company to write down the value of the Asset to reflect its current fair market value, thus impacting the financial statements.

Examples:

• Real Estate: A commercial property purchased for $1 million may lose value due to changes in the local market or economic downturn, now valued at $600,000. The company would record an impairment loss of $400,000.
• Goodwill: If a company acquires another and later finds that the expected synergies are not realized, the goodwill recorded may need to be impaired. For instance, if $200,000 of goodwill becomes worthless, it must be written down accordingly.
• Equipment: Machinery that is damaged or technologically obsolete may be considered impaired. For example, if a manufacturing plant’s equipment originally valued at $250,000 is now only worth $150,000 due to damage, the impairment would be recognized as $100,000.

Cases:

• Enron: The collapse of Enron involved significant impairment of Assets, leading to substantial write-downs that obscured the company’s true financial health.
• General Motors: During its Bankruptcy in 2009, GM faced massive impairments on its Assets as it restructured and assessed the value of its vehicles and plants.
• Marriott International: In the wake of the COVID-19 pandemic, Marriott reported impairments on property values as travel demand plummeted, requiring adjustments to Asset valuations on its balance sheet.