Final answer:
The difference between the asset's lower fair value and its higher book value is recognized as an impairment loss on the company's income statement, which reduces the asset's value on the balance sheet and affects the company's profitability.
Step-by-step explanation:
When the fair value of an asset is less than its book value, it indicates that the asset has lost value in the market relative to what is recorded on the company's financial statements. In this case, the correct answer is that the difference is recognized as an impairment loss (option c). This treatment reflects the decreased market value of the asset and conforms to accounting principles which require assets to be recorded at no more than their recoverable amount.
The impairment loss is a reflection of the asset's diminished future benefit to the company and is expensed on the income statement. This loss reduces the carrying amount of the asset on the balance sheet to its fair value and impacts the company's profitability.