what is a write down 
a write down is an accounting term for the reduction in the book value of an asset when its fair market value fmv has fallen below the carrying book value and thus becomes an impaired asset the amount to be written down is the difference between the book value of the asset and the amount of cash that the business can obtain by disposing of it in the most optimal manner a write down is the opposite of a write up and it will become a write off if the entire value of the asset becomes worthless and is eliminated from the account altogether laura porter investopediaunderstanding write downswrite downs can have a huge impact on a company s net income and balance sheet during the 2007 2008 financial crisis the drop in the market value of assets on the balance sheets of financial institutions forced them to raise capital to meet minimum capital obligations accounts that are most likely to be written down are a company s goodwill accounts receivable inventory and long term assets like property plant and equipment pp e pp e may become impaired because it has become obsolete or damaged beyond repair or if property prices have fallen below the historical cost in the service sector a business may write down the value of its stores if they no longer serve their purpose and need to be revamped write downs are common in businesses that produce or sell goods which require a stock of inventory that can become damaged or obsolete for example technology and automobile inventories can lose value rapidly if they go unsold or new updated models replace them in some cases a full inventory write off may be necessary generally accepted accounting principles gaap in the united states have specific standards regarding the fair value measurement of intangible assets gaap requires that goodwill be written down immediately anytime if its value declines for example in november 2012 hewlett packard announced a massive 8 8 billion impairment charge to write down a botched acquisition of u k based autonomy corp plc which represented a huge loss in shareholder value since the company was worth only a fraction of its earlier estimated value 1a write down impacts both the income statement and the balance sheet a loss is reported on the income statement if the write down is related to inventory it may be recorded as a cost of goods sold cogs otherwise it is listed as a separate impairment loss line item on the income statement so that lenders and investors can assess the impact of devalued assets the asset s carrying value on the balance sheet is written down to fair value shareholders equity on the balance sheet is reduced as a result of the impairment loss on the income statement an impairment may also create a deferred tax asset or reduce a deferred tax liability because the write down is not tax deductible until the affected assets are physically sold or disposed of in terms of financial statement ratios a write down to a fixed asset will cause the current and future fixed asset turnover to improve as net sales will now be divided by a smaller fixed asset base because shareholders equity falls debt to equity rises debt to assets will be higher as well with the lower asset base future net income potential rises because the lower asset value reduces future depreciation expenses special considerationsassets are said to be impaired when their net carrying value is greater than the future undiscounted cash flow that these assets can provide or be sold for under gaap impaired assets must be recognized once it is evident that this book value cannot be recovered once impaired the asset can be written down if it remains in use or classified as an asset held for sale that will be disposed of or abandoned 2the disposition decision differs from a typical write down because once a company classifies impaired assets as held for sale or abandoned they are no longer expected to contribute to ongoing operations the book value would need to be written down to the fair market value less any costs to sell the item companies often write down assets in quarters or years when earnings are already disappointing to get all the bad news out at once which is known as taking a bath a big bath is a way of manipulating a company s income statement to make poor results look even worse to make future results look better for example banks often write down or write off loans when the economy goes into recession and they face rising delinquency and default rates on loans by writing off the loans in advance of any losses and creating a loan loss reserve they can report enhanced earnings if the loan loss provisions turn out to be overly pessimistic when the economy recovers 