The accounting guidance on the treatment of fixed assets impairment charges is provided by International Accounting Standard (IAS) 36 and impairment charges apply to both tangible and intangible fixed assets.
The consequence of impairment is that the carrying value of the fixed asset must be adjusted so that the true value of the fixed asset to the business is reflected on the business’ balance sheet. The value of the fall in the value must be written off on the profit and loss account as an expense just like depreciation and amortisation.
According to IAS 36, a business must undertake an annual review of the business’ fixed assets to ascertain if they have suffered any impairment. All fixed assets must be reviewed for indicators or evidence of impairment in value, for example a housing company or property business would review if there have been any significant falls in property prices generally and if this is the case this could indicate that the business’ portfolio may has suffered impairment too.
