Write-Down

A writedown is an accounting treatment that recognizes the reduced value of an impaired asset. The value of an asset may change due to fundamental changes in technology or markets. One example is when one company purchases another and pays more than the net book value of its assets and liabilities. The excess purchase price is recorded on the buying company’s accounts as goodwill. If it becomes apparent that the purchased company no longer has the value recorded in the goodwill account (it can’t be resold at the same price), the value in the goodwill asset account is “written down”.

A write-down is supposed to be a one-time non-recurring charge and should not affect business fundamentals. However, beware of a company that takes write-downs too often—the management may not have an idea about how to run the company.