Impairment Losses
A sudden drop in an asset's value below its book value, such as a damaged vehicle or uncollectable dues, on the Profit and Loss statement.
In detail
An impairment is a sudden fall in what an asset is worth, beyond normal wear: a customer unlikely to pay, a vehicle written off in an accident, software that no longer works, goodwill in a business that has lost its customers. The loss is charged here by Journal Entry and credited to an allowance or to the asset itself. For receivables NFRS 9 asks for an expected credit loss allowance, so a company reviews its debtors at Ashadh end, estimates what will not be collected, and credits Allowance for Expected Credit Losses. A later recovery reverses the allowance. The IRD allows bad debts only when actually written off after reasonable effort, so the allowance creates a tax difference.
Formula
Impairment loss = Carrying amount - Recoverable amount, or Debtors x Expected loss rate for receivables
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Impairment Losses | Rs 15,000 | |
| Allowance for Expected Credit Losses | Rs 15,000 |
How to record it in BRAccount
- 01Run Financial Reports > Accounts Receivable with ageing to find balances over 180 days.
- 02Decide the expected loss on each old balance and note the reasons.
- 03Go to Invoicing > Journal Entry > New dated Ashadh end.
- 04Debit Impairment Losses and credit Allowance for Expected Credit Losses, or the asset ledger for a damaged asset.
- 05Submit. The entry below posts.
- 06When a debt is finally uncollectable, write it off against the allowance with another Journal Entry.
When to use it
Post by Journal Entry when an asset is damaged, obsolete or a customer balance is doubtful. Pairs with Allowance for Expected Credit Losses.
Example from the demo books
Dr Impairment Losses Rs 15,000, Cr Allowance for Expected Credit Losses Rs 15,000 for customer dues over 180 days at Ashadh end.