Impairment Testing

Impairment Testing

Impairment testing evaluates whether the carrying value of digital assets exceeds their recoverable amount. CryptaCount supports multiple impairment models aligned with different accounting standards and cost basis methods.

Why Impairment Matters

Digital assets are volatile. Under most accounting frameworks, if the fair market value of an asset drops below its carrying cost, the entity must recognize an impairment loss. The rules for when (and whether) that loss can be reversed depend on the accounting standard and cost basis method in use.

Example: Acme Digital Holdings acquired 10 ETH at €3,200 each (carrying value €32,000). At period end, ETH trades at €2,800. The fair value is €28,000 — an unrealized loss of €4,000 that may need to be recognized as impairment.

Running an Impairment Test

Navigate to Accounting → Impairment to run tests:

1. Select the period — Choose the accounting period to test
2. Run test — CryptaCount evaluates every asset position against current market prices
3. Review results — Each asset shows:
   • Carrying value (cost basis per the selected method)
   • Fair market value at period end
   • Impairment amount (if carrying value exceeds FMV)
   • Prior impairment already recognized
   • Net adjustment required

Results are broken down by asset, wallet, and GL account.

Impairment Models

CryptaCount applies different impairment logic based on the workspace’s cost basis method:

One-Way Impairment (Write-Down Only)

Applies to: Historic FIFO, LIFO, HIFO, Specific Identification

Under one-way impairment, losses are recognized when FMV drops below carrying value, but reversals are not permitted. Once an asset is written down, the new lower value becomes the cost basis going forward.

This aligns with US GAAP treatment of indefinite-lived intangible assets and fair value guidance where impairment is permanent until disposal.

Condition	Action
FMV < Carrying Value	Recognize impairment loss
FMV > Carrying Value (after prior write-down)	No reversal — carry at written-down value
FMV > Original Cost	No adjustment — carry at original cost

Journal entry for impairment:

Account	Debit	Credit
Impairment Loss — ETH	€4,000
Digital Assets — ETH		€4,000

Two-Way Impairment (Write-Down & Reversal)

Applies to: NRV + FIFO, NRV + Weighted Average

Under two-way impairment (Net Realizable Value methods), losses are recognized when FMV drops below carrying value, and reversals are permitted when FMV recovers — but only up to the original cost basis, never above it.

This aligns with IFRS treatment of inventory (IAS 2) where write-downs to NRV are reversed when the circumstances that caused the write-down no longer exist.

Condition	Action
FMV < Carrying Value	Recognize impairment loss (write down to NRV)
FMV > Carrying Value (after prior write-down)	Reverse impairment, up to original cost
FMV > Original Cost	Carry at original cost — no write-up beyond cost

Journal entry for reversal:

Account	Debit	Credit
Digital Assets — ETH	€2,000
Impairment Reversal — ETH		€2,000

Fair Market Value (Mark-to-Market)

Applies to: FMV

Under the FMV method, assets are carried at fair value each period. Unrealized gains and losses are recognized in the income statement. There is no separate “impairment” concept — all value changes flow through the P&L as they occur.

Weighted Average (No Impairment)

Applies to: Historic Weighted Average

The weighted average cost method does not apply impairment. The cost pool is continuously reweighted as new acquisitions occur.

Reviewing Results

The impairment results view shows:

Column	Description
Asset	Token symbol and name
Quantity	Total held quantity
Carrying Value	Current book value per the cost basis method
Fair Value	Market value at the test date
Impairment	Loss amount to recognize (or reversal for NRV methods)
Prior Impairment	Cumulative impairment already recognized
Net Adjustment	Amount to post in this period

Assets with no impairment (FMV ≥ carrying value under one-way methods) show zero adjustment.

Posting Impairment Entries

After reviewing results:

1. Confirm the impairment amounts are reasonable
2. Click Post Impairment Entries
3. CryptaCount generates journal entries for each asset requiring adjustment
4. Entries are posted to the impairment loss (or reversal) GL accounts

Posted impairment entries appear in the journal ledger and are included in the period close checks.

Note

Impairment tests should be run before the period close workflow. The period close checks verify that impairment has been assessed for the period.

Lot-Level Impairment

For lot-based methods (FIFO, LIFO, HIFO, Specific Identification), impairment is assessed at the individual lot level:

• Each lot’s carrying value is compared against the current FMV
• Lots acquired at different prices may have different impairment amounts
• The lot viewer under Balances → Lots shows per-lot impairment status

Example: Acme Digital Holdings holds two ETH lots:

Lot	Quantity	Cost Basis	FMV	Impairment
Lot 1 (Jan purchase)	5 ETH	€3,200/ETH	€2,800/ETH	€2,000
Lot 2 (Mar purchase)	5 ETH	€2,600/ETH	€2,800/ETH	€0

Lot 2 has no impairment because FMV exceeds its cost basis.