Capital Asset Impairment - Permanent Impairment Write-Down (GASB 42)
Recording a permanent impairment of a capital asset under GASB 42 when an identifiable event causes a significant, unexpected decline in the service utility of the asset.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Impairment Loss - Capital Asset (Gov-Wide) | Expense (+) | 2,200,000.00 | - |
| Accumulated Impairment - Building / Infrastructure | Asset (-) | - | 2,200,000.00 |
💡 Accountant's Note
GASB 42 requires governments to evaluate capital assets for impairment when events or changes in circumstances suggest a significant, unexpected decline in service utility. Triggering events include: physical damage (fire, flood), obsolescence (changed technology), change in legal or environmental factors, or change in manner/duration of use. Unlike private sector impairment (comparing carrying value to cash flows), government impairment focuses on SERVICE UTILITY — the government's ability to provide services. Measurement uses a restoration cost approach, deflated replacement cost approach, or service units approach.
Practitioner & Systems Framework
💻 ERP Architecture
The impairment write-down creates a new accumulated impairment balance (separate from accumulated depreciation). Future depreciation is calculated on the reduced carrying value. If the impairment is temporary, the asset is not written down — but use may need to be disclosed. Insurance recoveries for impaired assets are a separate event and may result in gain recognition.
⚠️ Audit Flags
Governments often fail to recognize capital asset impairments because they don't have private sector financial reporting incentives. Auditors identify impairment triggers through physical site visits, knowledge of events, and inquiry of public works staff. Tornado, hurricane, or flood damage requiring FEMA assistance are clear impairment triggers.
📄 Required Documentation
Engineering assessment of remaining service utility, impairment calculation methodology (restoration cost, deflated replacement cost, or service units), insurance claim documentation, governing body notification of impairment, GASB 42 disclosure in notes.
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