An impaired asset is an asset which has a market value less than the value listed on its owner's balance sheet.
According to U.S. accounting rules (known as Generally Accepted Accounting Principles (United States), US GAAP), the value of an asset is impaired when the sum of estimated future cash flows from that asset is less than its book value. At this point an impairment loss should be recognized, which is done by taking the difference between the fair market value (FMV) 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 FMV, recording this as its new book value.
[Albrecht, S., Stice, E., Stice, J., & Swain, M. (2011). ''Accounting: Concepts and applications'' (11th ed.). Mason: South-Western, p. 396–397]
This is a common occurrence for goodwill (accounting), goodwill where a company will purchase a target company for more than the value of its net assets. Under US GAAP, goodwill is tested annually for impairment.
*Lower of cost or market
United States Generally Accepted Accounting Principles