Financial Terms Glossary

Impairment Charge


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.


At the height of a Stock Market boom some Corporations go mad and pay too much money for other companies that contribute to global domination. Later, when everything calms down, you re-examine what you have bought and realise you paid too much. You know this by comparing your new (sane) projections with the ones that justified the (insane) acquisition in the first place. This difference or 'Impairment Charge' is the full amount by which you originally overpaid and gets written off in full against current profits. Ouch.

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