What is meant by the term 'asset impairment'?

The term 'asset impairment' refers to a situation where the carrying amount of an asset exceeds its recoverable amount, which is often defined as the higher of its fair value less costs to sell and its value in use. When an asset is impaired, it typically means that there has been a significant reduction in value, often reflecting economic changes, technological advancements, or other factors that affect the asset's ability to generate future economic benefits.

Option C specifically captures this concept by stating that impairment involves a reduction in fair value below the carrying amount. This aligns with accounting standards that require companies to assess their assets for impairment periodically and recognize losses when their value has diminished to reflect economic realities, ensuring the financial statements provide a true and fair view of the company's financial position.

The other options do not accurately represent the concept of asset impairment. For instance, an increase in asset value (one of the other choices) contradicts the very essence of impairment, which is about value loss rather than gain. Similarly, while a decrease in value due to market conditions touches on one potential aspect of impairment, it lacks the precise definition involving the carrying amount. Lastly, depreciation of a new asset pertains to the systematic allocation of the asset's cost over its useful life, which is entirely