Why impairment matters to a first-time founder
Impairment prevents assets from remaining in the accounts above amounts they can support. It can reduce profit, equity and covenant headroom, revealing that an acquisition or investment underperformed. Founders need timely tests and realistic assumptions because delayed recognition makes management information and investor reporting unreliable.
Examples of impairment
A startup acquired a small brand and recorded ₦400 million of goodwill. After losing its largest customer, revised forecasts support a lower recoverable amount for the relevant business unit. The accountant performs the required test, records a ₦120 million impairment and discloses the key assumptions and sensitivity.
Common misunderstanding
Impairment is not routine depreciation or amortisation. Those methods allocate an asset’s cost over its useful life, while impairment responds to a carrying amount that is no longer recoverable. A fall in revenue can be an indicator, but it does not determine the accounting amount without the required test.
When to use it
Use impairment when applying the reporting framework to assets after warning signs or mandatory annual tests. Document forecasts, discount rates, evidence and approvals, then revisit them when conditions change. Never manipulate assumptions to postpone a loss or create an excessive loss for later reversal; either practice can mislead readers.