Impairment of assets
In one sentenceReducing an asset's carrying amount to its recoverable amount when the recoverable amount is lower, and recording the difference as an impairment loss for the period.
Simply put
The recoverable amount is the higher of: what you could sell the asset for after selling costs, and the cash it will generate for you if you keep using it (under IAS 36).
You look for impairment when there is an indication, such as a machine breaking down or a sharp fall in the market for its product. Impairment is not depreciation: depreciation is a regular allocation, and impairment is a sudden loss.
Worked example
A factory has a machine with a carrying amount of 500,000 SAR, and after newer technology appeared it estimated the machine's recoverable amount at 380,000 SAR.
Carrying amount500,000
Recoverable amount380,000
Dr Impairment loss120,000
Cr Accumulated impairment losses120,000
Impairment loss = 500,000 − 380,000120,000 SAR
Don't confuse it with
DepreciationDepreciation is expected and regular every year, while impairment is an additional loss when there is evidence the value has declined.