Impairment Cost

Impairment cost is the cost of loss of any asset due to decreasing actual cost of that asset. This loss shows in the expenses side of income statement. You know that we show all the assets in the balance sheet on their book value but recoverable or actual market value may differ. If the recoverable value of asset is less than book value or carrying value of that asset, this loss will be impairment loss and its cost will be impairment cost.

Steps to Calculate Impairment Cost

1. To Indication of Impairment 

Before calculating impairment cost, you should know the main indication of impairment of any particular asset. It will save your time for reviewing each asset. IAS 36 gave following indication.

a) Decrease in the market value of any asset.
b)Negative changes in the technology.
c) Increase in the interest rate
d) Worse economic performance of any asset.

2. To Calculate Recoverable Value of Asset

For this, you have to find correct and updated trend of asset. You have to meet its dealer for knowing today price of asset.

3. To Calculate Carrying Value of Asset

You can find carrying value of asset by deducting depreciation and old impairment losses' cost.

4. To Calculate Difference of Recoverable Value of Asset and Carrying Value of Asset

Excess of carrying value of asset over recoverable value of asset will be impairment cost.

Impairment Cost Analysis

It is the cost whether impairment cost should be calculated or not. There are lots of benefits of calculating impairment cost and showing its loss in the income statement. It will be helpful to bring company's real financial position. Investors can take help for their investment decisions, if they found the impairment loss of assets. Specially the value of goodwill may change due to market changes. But other side, it is very difficult for company to consume time for calculating impairment loss cost because sometime its result may be adverse market value of shares or EPS may decrease due to this.