It is equivalent to the asset falling in price and becoming worthless. However, to reflect the current value of the asset, there must be an asset impairment provision as a deduction.
The asset still has its original price, but its current value is minus the impairment provision, which is somewhat similar to the bad debt provision for accounts receivable.
Eight impairment provisions accrued for assets
The "Enterprise Accounting System" stipulates that eight impairment provisions are accrued for assets, which are:
1. Bad debt provisions accrued for accounts receivable and other receivables;
2. Short-term investment depreciation provisions accrued for short-term investments such as stocks and bonds;
3. Long-term investment impairment provisions for long-term investments such as long-term equity investments and long-term debt investments;
4. For raw materials, packaging, low-value consumables, inventory commodities, etc. Inventory depreciation provisions accrued for inventories;
5. Fixed asset impairment provisions accrued for fixed assets such as houses, buildings, machinery and equipment;
6. Patent rights and trademark rights Provision for impairment of intangible assets and other intangible assets;
7. Provision for impairment of projects under construction;
8. Provision for impairment of entrusted loans;
In addition to monetary funds, notes receivable, trading financial assets, prepaid accounts, long-term deferred expenses, etc., corresponding impairment provisions have been made for assets.