Question

Practically speaking, how do you recognize when as asset has become impaired?

Answer 1

Solution. An asset is considered to get impaired, when its expected cash flow movement gets lower value than its book value, as recognized by the investor. This leads to the amount of loss to the investor by the amount by which expected cash flow falls short due to changes in market in which the organization runs. Determining value of impairment of assets facilitates in decision making for sale of long term assets.

Fair value of asset is determined under GAAP(Generally Accepted Accounting Principles) to set standard value, and compared to estimated lowest level of undiscounted cash flows by recoverability test and written down. Market value changes, changes and advancement in technology and economy can cause or act as indicator to asset impairment.