An Impairment cost must be included under expenses when the carrying value of a non-current asset exceeds the recoverable amount. The Impairment cost is calculated as:

Carrying value - Recoverable amount

The carrying amount is defined as the value of the asset as displayed on the balance sheet

Balance sheet

In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...

. The recoverable amount is the higher of either the asset's future value for the company or the amount it can be sold for, minus any transaction costs.

Example

For example, a store that is recorded on the balance sheet as a non-current asset worth £20,000 will have a carrying amount of £20,000.
However, the store owner finds that the market value

Market value

Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...

 of the shop falls to £12,000. Therefore an Impairment cost is calculated:

£20,000 - £12,000 = £8,000

This is recorded as an expense of £8,000 in the profit and loss statement.