Impairment
A write-down of an asset's carrying value when its recoverable amount falls below what the balance sheet records.
Formula
Impairment Loss = Carrying Amount - Recoverable Amount, where Recoverable Amount is the higher of fair value less costs to sell and value in use
Unit
₹ crore
In depth
Impairment is a non-cash charge, so it does not drain the bank account — but it is an admission that cash spent in an earlier year did not buy what it was supposed to. Goodwill is tested annually, which is why a disappointing acquisition eventually surfaces as an impairment years after the deal. Because the test relies on management's own cash flow forecasts, impairments are typically recognised late and in large lumps rather than gradually. Adding impairments back as 'exceptional' without asking why the asset was overvalued removes exactly the information the charge contains.
Worked example
Goodwill of ₹300 crore from an acquisition is tested and the unit's recoverable amount is ₹180 crore. The impairment is 300 - 180 = ₹120 crore, wiping out more than a year's profit and confirming the acquisition price was too high.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Impairment” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.