Recognition of impairment losses
ID:CVRIL

Video Overview

The prudence principle in accounting means that in the financial statements, assets and income should never be overstated, and liabilities and expenses should never be understated. Assets should therefore consistently reflect their current worth and not be overstated. Therefore if an asset’s current worth falls below its carrying amount, the asset is said to be impaired. This involves the accounting entry to write down the asset’s current carrying value at impairment date to equal the current worth also called the recoverable amount. Any subsequent depreciation is then calculated by taking the new carrying value and depreciating it over the remaining estimated useful life of the asset. In this tutorial we will look at the calculations and accounting entries for the recognition of impairment losses.