The Concept of Impairment
From the Journal of Accountancy, Dec, 1994 by Kimberly J. Smith
"If an asset's value declines, the asset has suffered economic impairment. If its value in place (the net present value of remaining cash flows) falls below its abandonment value (the amount that could be obtained through sale or other disposal), the asset should be abandoned and an impairment realized. If an asset is disposed of for less than book value, a realized loss will be recognized.
If the asset's value in place declines but remains greater than its abandonment value, the asset should be retained. This type of impairment is unrealized because there is no disposal. As long as an asset's value in place remains above book value, no loss is recognized. However, if the asset's value under such circumstances declines so it is worth less than book value, a loss may be recognized, even though there is no disposal."
The last sentence seems to summarize what must have been the recommendation from Torvec's auditors.
