DEFINITION of 'Impaired Capital'

1. When a bank's actual assets are worth less than their stated value. When a bank has impaired capital, this capital can be liquidated if the bank cannot make up the deficiency. State laws define the treatment of a bank with impaired capital.


2. When a company's actual assets are worth less than the stated value of the company's outstanding shares.

BREAKING DOWN 'Impaired Capital'

In the case of a bank with impaired capital, one option for making up the deficiency is that the bank's board of directors can choose to levy and collect pro rata assessments on common stock to restore the impaired capital. If stockholders do not pay the assessments within a specified time frame, usually three to four weeks, the bank's board of directors can choose to sell enough of the stockholder's shares to collect the assessment.

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RELATED FAQS
  1. How is impairment loss calculated?

    Learn how companies re-evaluate their assets and compare them against book values to recognize impairment and why this strategy ... Read Answer >>
  2. How do businesses determine if an asset may be impaired?

    Find out how a business should determine if an asset may be impaired in accordance with the generally accepted accounting ... Read Answer >>
  3. How do accountants record impaired assets?

    Learn why accountants need to identify and record impaired assets, how impairments are measured and how they impact financial ... Read Answer >>
  4. How do you write off impaired assets from the financial statement?

    Learn what an impaired asset is and how it effects a company's financial statements. Understand how an accountant writes ... Read Answer >>
  5. How are impaired assets treated under U.S. accounting rules?

    Learn how to identify, test and measure impaired assets under the generally accepted accounting principles, Statement 144 ... Read Answer >>
  6. When and why does goodwill impairment occur?

    Understand what the goodwill of an asset is and how it's created. Learn how the goodwill of an asset can be impaired and ... Read Answer >>
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