What is meant by asset impairment?

Asset impairment refers to a permanent reduction in the value of a company's asset, indicating that it is no longer worth its recorded book value due to various factors, such as changes in market conditions, technological advancements, or other economic circumstances. When an asset is deemed impaired, the company must write off the impaired portion of the asset, which often includes goodwill, as it has lost value.

The focus on writing off goodwill and measuring losses associated with assets is critical in financial reporting. This ensures that the financial statements accurately reflect the current value of the assets, thus maintaining the integrity of the financial reporting process. Recognizing impairment is essential, as it prompts companies to make necessary adjustments in their financial statements that can affect investment and operational decisions.

Other options do not correctly define asset impairment. Increasing an asset's book value or providing a special tax deduction for losses do not align with the concept, nor does evaluating asset condition solely for maintenance purposes.