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Impairment of an asset is defined as a permanent reduction in the value of an asset that is not recoverable. This definition is crucial in financial accounting as it highlights that impairment occurs when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. When impairment is recognized, it results in a reduction of the asset's carrying amount on the balance sheet, reflecting the true economic reality that the asset can no longer generate sufficient cash flows to justify its original valuation.

This definition is grounded in the principle that financial statements should present a true and fair view of the company's financial health and performance. Recognizing an impairment loss ensures that the reported asset values are not overstated, which enhances the reliability of financial information provided to users, such as investors and creditors.

In contrast, a temporary decrease in asset value does not meet the criteria for impairment, as it may recover in the future. A valuation increase following an asset sale is not related to impairment, as it pertains to gains rather than losses. Lastly, a periodic reassessment of asset value is part of good practice but does not specifically define impairment; it is a process that could lead to recognizing