Generally accepted accounting principles (GAAP) require that the balance sheet present items at the cost originally paid for the asset. GAAP requires historical cost reporting because the cost is verifiable and reliable. An asset’s value may never be restated to reflect appreciation in value; restating assets due to permanent impairment is possible, however, in certain situations.

Determine if the decline in land value qualifies as impairment under GAAP. An impairment loss can be recognized only if the historical cost carried on the balance sheet cannot be recovered and exceeds the fair value of the asset. For land, this means that the eventual market price of the land at sale is expected to be lower than historical cost.

Determine your sales intent with the land. If you intend to sell the land in the next year or so, you may have an accurate estimation that the market price will be lower than historical cost. If you are holding the land indefinitely, however, it can be difficult to determine if an actual impairment exists, because you cannot develop an accurate estimate of the land’s market price in the future.

If you determine that an actual impairment exists, record the impairment loss in the general ledger. Debit an impairment loss expense account for the amount of the loss and credit the land asset account for the corresponding amount.


The "Journal of Accountancy" has outlined six criteria for determining when an impairment loss may exist: a significant decrease in the market price of an asset; a significant change in how a company uses an asset or its physical condition; a significant change in legal factors, such as an Environmental Protection Agency ruling that land is contaminated; an accumulation of cost to acquire an asset significantly greater than expected; or a forecast demonstrating continued loss on an asset.


Recorded impairment losses can not be recovered on the balance sheet until the asset is sold.

International Financial Reporting Standards under development allow for the fair-value reporting of balance sheet items. This stands in contrast to current U.S. GAAP requirements.