impairment loss

[anywhere]

I am wondering why impairment loss does not affect the cash flows??
this is my logic: impairment loss reduces net income, and thus tax payment and cash flows
anyone gets an idea?

 

[fwvagabond]

There are two ways you can think of this.

1. impairement is on paper. You don't actually pay cash because of it.

2. even though net income is reduced as you said, but to arrive at CFO, (using the indirect method) you need to adjust the change in assets. Like inventory, an increase is a use of cash (deducted from CFO) while a decrease is a source of cash (added to CFO). Since asset is decreased by the amount of impairement, it is adjusted back.

 

[gweru01]

impaiment will not be recognised by the tax code hence taxable income is the same.or so i guess.so same tax will be paid as would have ben paid otherwise.
hope that helps