A Need For Impairment Provisions

In light of the troubled UK property market, we look at the conditions which must apply to constitute an impairment.

With the current devastation in the UK housing market, one of the key questions is whether, and to what degree, falls in property values will need to be reflected in impairment provisions within the 2009 financial statements.

First, is the asset really impaired? A drop in prices from a previous estimate, or from the most recent appraisal, does not necessarily lead to an impairment. An impairment arises only when there is a reduction in the recoverable amount from a fixed asset below its carrying amount. However, the recoverable amount is not quite what it might seem at first.