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What is an impairment?

The term impairment is usually associated with a long-lived asset that has a market which has decreased significantly. For example, a meat packing plant may have recently spent large amounts for capital expenditures and then experienced a dramatic drop in the plant's value due to business and community conditions.

If the undiscounted future cash flows from the asset (including the sale amount) are less than the asset's carrying amount, an impairment loss must be reported.

If the impairment loss must be reported, the amount of the impairment loss is measured by subtracting the asset's fair value from its carrying value.