Impairment is an accounting principle that outlines the process of reducing the book value of an asset when its fair market value drops below the asset's carrying amount on the balance sheet. It is a critical concept in financial reporting that ensures that the value of assets is not overstated in an organization's balance sheet.
Impairment refers to the reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount, often due to obsolescence, damage, or market value decline.
The recoverable amount represents the value of an asset that is treated as the greatest of its net realizable value and its value in use.
A write-down is a reduction in the book value of an asset on a company's financial statements, typically due to a decline in the asset's market value. This accounting procedure adjusts the carrying value of an asset to reflect its current estimated recoverable amount.
