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Impact of Asset Impairment

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In the initial period following an asset impairment, a firm’s:

Asset turnover ratios will rise because the asset base is lower.
Debt-to-Equity ratio will rise because the impairment has lowered the value of equity.
Profit margins will show a one-time dip due to the write-down expense (assuming all needed write-downs have taken place).
Book value of equity will drop.

In the future accounting periods, after the asset impairment has been recognized, a firm’s:

Future depreciation expense will decline because the book value of the depreciable asset base is now lower.
Future profitability should rise because depreciation expense is lower.
Return on Assets (ROA) and Return on Equity (ROE) should rise because the firm is more profitable and has a lower asset base.

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Impairment of Long-lived Assets

Derecognition of PPE and Intangible Assets

Long-lived Assets

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Impact of Asset Impairment

Derecognition of PPE and Intangible Assets

Disclosures Related to PPE and Intangible Assets

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Financial Analysis

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Long-lived Assets

Study Notes for Long-lived Assets

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