Impairment of Loans, also known as loan impairment, refers to the reduction in the recoverable amount of a loan due to a borrower’s inability to meet the contractual terms. This accounting process involves assessing the loan’s carrying value against its estimated recoverable amount, recognizing any shortfall as an impairment loss. Loan impairment is crucial for accurate financial reporting, ensuring that financial statements reflect the true economic value of loan assets.
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