Define impairment in relation to assets.

Impairment in relation to assets refers to a permanent reduction in the value of an asset below its carrying amount. This occurs when the recoverable amount of the asset—the higher of its fair value less costs to sell and its value in use—falls below its carrying value on the balance sheet. In other words, when circumstances indicate that an asset's carrying value may not be recoverable, an impairment loss must be recognized to reflect the true economic value of the asset.

This concept is crucial for ensuring that financial statements provide an accurate representation of an entity's financial position. Recognizing impairment helps prevent an overstatement of assets on the balance sheet, which can mislead investors and stakeholders about the entity's financial health.

The other options do not accurately reflect the definition of impairment. A temporary decline in asset value does not capture the permanent nature of impairment. An increase in the asset's market value is contrary to the concept of impairment, as it suggests that the asset's value is increasing rather than decreasing. Lastly, a write-off of obsolete inventory pertains specifically to inventory management and does not apply to the general concept of impairment for long-term assets.