According to U.S. accounting rules (US GAAP), the value of an asset is impaired when the sum of estimated future
cash flow from that asset is less than the
book value of the asset. At this point an impairment loss should be recognized, which is done by taking the difference between the
fair market value and the book value and recording this amount as the loss. This basically records the asset as if it were being acquired brand new at its fair market value, recording this as its new book value. This is a common occurrence for
goodwill where a company will purchase another company for more than the value of the net assets of the target company. Under US GAAP, goodwill is tested annually for impairment.