Nedskrivnings

Nedskrivnings, a Swedish term, translates to impairment in English. It refers to a reduction in the value of an asset on a company's balance sheet. This reduction occurs when the asset's carrying amount, its book value, is deemed to be higher than its recoverable amount. The recoverable amount is typically the higher of the asset's fair value less costs to sell or its value in use.

Impairment testing is a crucial accounting process, especially for intangible assets like goodwill, patents, and trademarks, as well as for tangible assets such as property, plant, and equipment. Companies are required to assess at each reporting period whether there are any indications that an asset may be impaired. If such indications exist, an impairment test must be performed.

The recognition of an impairment loss leads to a decrease in the asset's value on the balance sheet and is recorded as an expense in the income statement. This expense reduces the company's reported profit for the period. In subsequent periods, if the circumstances that caused the impairment no longer exist, or if they have diminished, the impaired asset may be revalued upwards, though this is not always permitted for all types of assets, particularly goodwill. The principles of nedskrivnings are governed by accounting standards, such as International Financial Reporting Standards (IFRS) or generally accepted accounting principles (GAAP) in various jurisdictions.