Final answer:
The question relates to the accounting process of individually assessing significant assets for impairment and recognizing an impairment loss if necessary. This ensures accurate financial reporting by reflecting the reduced future economic benefits of the asset in the entity's financial statements.
Step-by-step explanation:
The query pertains to accounting principles, specifically the assessment and treatment of individual assets for impairment in financial reporting. Assets that are individually significant should be assessed separately for impairment. If it is determined that the asset is impaired, an impairment loss needs to be recognized in the financial statements. This process is critical in ensuring that the financial statements provide a true and fair view of the entity's financial position.
An asset is considered impaired if its carrying amount exceeds its recoverable amount, which is the higher of an asset's fair value less costs to sell and its value in use. Once an impairment loss is recognized, it is reported on the income statement and the carrying amount of the asset is reduced on the balance sheet, reflecting the diminished future economic benefits expected from the asset.