So when is an asset, an item of property, plant and equipment impaired? When should you start questioning an assets carrying value being recoverable?
The best indication of an asset being impaired is if it’s broken down, losing its efficiency and volumes or it’s simply not up to the latest technology and possibilities. Another indication is when its producing items that are not meeting the markets demands and you need to upgrade or replace the equipment to meet the latest standards. Note that those are physical and rather easy to understand if occurring.
But what about those, which are not as apparent as in you cannot see them physically with your own eyes. What about if you’re making losses or if there are decreasing operating margins? What about if you’re making more and more faulty products? Those are the indications not visible, but still giving you an indication the asset’s value may be lower than you’ve got within your books.
Given the indications you ought to test an asset for impairment when such events occur, however, note that the examples given above are just examples and given your situation there may be other indications which hint impairment within the value of the asset. Be on the lookout for such occasions.