Let me try again but this time step it out through the relevant...

Let me try again but this time step it out through the relevant financial statements...

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6	Column 7
1		Beginning	Step 1	Step 2	Step 3	Step 4	End
2	P&L[/B]
3	Revenue					40	40
4	COGS				-60	-40	-100
5	Gross margin	0	0	0	-60	0	-60
6
7	Balance sheet
8	Cash	100	100			40	40
9	Inventory		100	100	40
10	Total assets	100	200	100	40	40	40
11	Creditors		100
12	Share capital	100	100	100	100	100	100
13	Retained earnings				-60	-60	-60
14	Liabilities + Equity	100	200	100	40	40	40
15
16	Cash flow
17	Customer receipts					40	40
18	Payments to suppliers			-100			-100
19	Net operating cash flow	0	0	-100	0	40	-60
20	Cash at beginning	100	100	100			100
21	Cash at end	100	100	0	0	40	40

Beginning: You start business with $100 cash contributed through share capital

Step 1: You buy $100 inventory on credit

Step 2: You pay the stock supplier for the inventory before you have managed to sell the stock

Step 3: You write the stock down to $40 (reflecting your thoughts on its recoverable value)

Step 4: You sell the stock for its impaired value of $40

End: You have $40 of the invested $100 cash left.

Should be pretty evident from this that the impairment charge at step 3 (non-cash at time it was posted to the P&L and balance sheet) reflects an over-payment for stock bought on credit (at Step 1) and this bears out happening (in Step 4). The impairment charge reflects the loss of cash from buying and selling this item of stock.

Step me through your position this way and see if you agree the impairment does, in effect, reflect a waste of cash by management through poor inventory purchasing at Step 1.