The loss in value that occurs when the book value or carrying value of an asset (or a cash-generating unit) is greater than its net recoverable value. Assets such as fixed assets, financial assets, and goodwill may experience impairment sometime over the course of their useful life. Impairment loss results from a set of external and internal sources (commonly called indicators of impairment):

• external sources: market value declines, increases in market interest rates, negatively disruptive changes in technology, markets, regulations, economy, etc., value of net assets dropping below market capitalization, and so on.
• internal sources: physical damage or destruction, obsolescence, assets are not in use or held for disposal, economic performance is below expectations, etc.

At the end of each reporting period, impairment (and impairment loss) is determined based on an impairment testing, that is, an entity’s assets will be assessed for impairment. If an entity has any indication that an asset may be impaired, then its recoverable amount must be calculated. Accumulated impairment losses are deducted, along with accumulated depreciation, from the asset’s original value, to arrive at its carrying value.