Impairment Charge

Formal

A very special type of depreciation charge. If a company has bought another business and paid a certain value for it - then this can be included as an asset by the acquiring company. However, if the nature of the acquired business changes, or the economic situation deteriorates, such that the monies paid for that business are no longer justified under rules of future business valuation - then the value of this business must be reduced by charging the Profit and Loss Account with a specific ‘Impairment Charge’. Not good news.

Real-world Example

A company's factory is damaged by flooding and is now worth far less than its book value. It records a $2M impairment charge, writing the asset's value down to reflect its reduced worth.