Recoverable value is key
There's usually more nuance to fixed-asset impairments than this simple truck example suggests. For example, if a complex piece of specialized, multimillion-dollar piece of equipment is, in essence, totaled, then the company could feasibly sell the equipment for parts. If the cash recovered from that is enough to exceed the equipment's recorded cost, then an impairment is inappropriate. The recoverable value is enough to avoid the impairment.
This impairment hinges on the concept of recoverable value. The company must consider the new fair-market value of the asset in question and the cash flow the asset would generate if the company decided to keep it in operation.
For example, a legal easement may reduce access to a commercial property, reducing its fair-market value substantially. Without sufficient access to the property, a third-party buyer would have materially less use for the property, which would drive down its value abruptly. In this case, the property's new fair-market value, less selling expenses, could be well below its recorded cost. However, if the present value of the future cash flow that the building will produce exceeds its recorded cost, then the company would not be required to record an impairment.
In other words, recoverable value is not just fair-market value but the greater of either fair-market value or the value of continued use.
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