Impairment of a Patent
A company owns a patent with a book value of €100,000. Due to new technologies, its market value drops to €60,000.
- bookValue:
- 100000
- marketValue:
- 60000
Deep dive
Impairment is a decrease in the carrying value of an asset when its market value falls below its book value. This often occurs due to market changes or asset obsolescence. Unlike amortization, impairment is not a regular process but a one-time adjustment.
Key formula
Book Value - Market Value
Real-world examples
Pitfalls to avoid
- Failing to regularly assess assets for impairment.
- Confusing impairment with amortization.
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