Impairment: When Something Goes Wrong

If you only read one thing Impairment is a significant, unexpected decline in an asset’s service utility, storm damage, for example, not the normal, expected wear that depreciation already accounts for.

Builds on FM6.3 Depreciation is the expected, gradual decline in an asset’s value. Impairment is something else entirely.

Why This Matters

Confusing impairment with ordinary depreciation understates how badly an asset has actually been damaged, and can leave a district carrying a building or facility on the books at a value it can no longer actually deliver.

What’s Actually Going On

Impairment is a significant, unexpected decline in an asset’s service utility, not the routine wear depreciation already handles. A roof gradually aging over 20 years is depreciation. A roof caving in during a storm is impairment.

When impairment occurs, the asset’s value gets written down to reflect what it can actually still do, separate from and in addition to whatever depreciation had already been recorded. The event has to be both significant and unexpected, minor damage that doesn’t meaningfully affect the asset’s usefulness generally doesn’t rise to this level.

How This Applies

After any major unexpected event, storm damage, a fire, sudden obsolescence, check whether affected assets need an impairment write-down, not just continued normal depreciation. Waiting until the next scheduled depreciation cycle to address it understates the district’s actual financial position in the meantime.