An impaired asset carries a market value that is less than its book value or the value that's listed on the company's balance sheet. The difference in value has to be accounted for and reflected as the asset’s new diminished value in the balance sheet.Impaired assets are generally long-term tangible assets. However, a company's accounts receivables and intangible assets may also become impaired.
Here's how impaired assets can be accounted for:Suppose, a company incurred $250,000 on a fresh stock of inventory the previous year. However, the worth of the investor went down by $100,000 due to depreciation. As per the latest balance sheet, the book value of the inventory will therefore be $150,000. In some cases, companies may also make a provision for impairment losses under their balance sheet.