When a company buys an asset, they will record the value of the asset on their balance sheet as an asset. That asset, like a piece of land, over time can increase or decrease in value. If the company can prove the piece of land increased in value under their ownership it can be recognised as a profit in the annual accounts. Equally a piece of land that declines in value should likely be recorded as a loss in the annual accounts - also known as an impairment charge. If a company legally sells ownership of the piece of land, they must formally calculate the difference between what they thought it was worth and how much they actually received from the new owner.
Impairment charges are typically 'non-cash' items, meaning they are used by companies to allow shareholders to get a fair picture of what's going on with the company even if no cash has actually changed hands.
As an example, suppose you had bought a house in 2007 for £100k at the height of the boom and then spent £50k doing it up but its value in 2009 was just £110k. Even if you still retained ownership of the house, you would have spent £150k to end up with a house worth £110k and so made a loss of £40,000 on your investment of buying a house and the cost of doing it up, even if house ownership had not changed between 2007 and 2009. That loss in value of your house (ie £40k) is the impairment charge.
Last edited by davidjohnson6; 13th Oct 2013 at 23:19.