Asset Impairment

Asset impairment occurs when the value of a company's asset drops below its recorded value on the financial statements. This can happen due to factors like market decline, damage, or obsolescence. When impairment is identified, the company must recognize a loss, reducing the asset's book value to its fair market value. This process ensures that financial statements accurately reflect the true worth of assets, providing clearer insights into the company’s financial health. Impairment is important because it prevents overestimating assets and ensures transparency in financial reporting.