Google has told the SEC that its billion-dollar acquisition of 5% of AOL, made in 2005 to prevent Microsoft from doing it and giving AOL a $20 billion over-the-top valuation, “may be impaired,” accounting-speak for it ain’t worth what it was (if it ever was).

Google, supplies a lot of AOL’s ads, anticipates unquantified write-offs that may be “material,” but continues carrying the investment at cost. Speculation has the losses amounting to $500 million.

The market seems to have taken the news as a harbinger of an AOL sale.

See, Time Warner last week said it’s figured out how to divide AOL’s advertising and subscriptions so it could dump the toxic piece of one of the world’s worst mergers.

It means to divvy things up by early next year and there are supposed to be on-going talks with both Yahoo and Microsoft; Google could demand that Time Warner buy back its position if a deal materializes.

Time Warner’s Q2 earnings dropped 26%, down $1.07 billion to $792 million, two cents a share, a fact it blamed in part on AOL. AOL’s revenues were down 16% in Q2 to $1.1 billion on a 2% increase in ad revenue while subs dove another 26%, down 694k customers, and operating income settled down 36% to $230 million.