What Is an Impaired Asset?

By Mike Price – Updated Dec 11, 2025 at 9:06 AM EST

Key Points

ARs often need writing off due to client defaults or economic downturns, impacting a firm's financial health.
Goodwill impairment occurs when acquired assets fail to deliver expected value, leading to financial losses.
Frequent goodwill write-offs suggest a company may overpay during acquisitions, risking investor money.

An impaired asset is an asset with a lower market value than the amount carried on the balance sheet. Asset impairment is commonly referred to as "writing off" an asset. Companies are required to book a loss and reduce an asset's value if they determine an asset is impaired. Assets such as accounts receivables, notes receivables, and goodwill are most likely to be impaired.

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An infographic showing what impaired assets are and how they work. — Image source: The Motley Fool

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Loan Default

When you stop making payments on a loan, the loan is in default. However, there can be other considerations depending on the type of debt.

Goodwill is the most common asset impairment for the types of public businesses you'll see as an investor. The business is required to value each subsidiary every year and compare that value to the amount of assets (including goodwill) carried for it on the balance sheet. If the business falls short and that shortfall is expected to be permanent, the goodwill balance is adjusted, and a loss is recorded on the income statement.

Goodwill impairment can happen for a number of reasons. The subsidiary could be poorly managed, make a bad product, experience a loss of market demand, or simply have been overpriced when the acquisition occurred.

GAAP requires many assets to be tested annually for impairment, but companies should know well ahead of time what types of impairments are coming.

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About the Author

Mike Price is a 23 year-old Masters of Finance graduate who first started learning about investing on the Motley Fool when he was 13. He is currently seeking a job.

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Mike Price has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool recommends United Natural Foods. The Motley Fool has a disclosure policy.