The main purposes are:
1. Ensure the accuracy and authenticity of financial reports.
2. Reduce corporate financial risks.
3. Respond to the risks brought by the decline in asset value and provide reserve funds for possible losses.
4. The provision for impairment of assets involves many factors, such as expected income, market risk and credit risk. Enterprises need to determine the appropriate content and method of impairment provision according to accounting standards. In financial reports, impairment provision is usually classified as non-recurring expenditure.
Role of impairment provision:
The main function of impairment reserve is to help enterprises avoid the risk of asset impairment. Asset impairment refers to the situation that the book value of an enterprise's assets is higher than the actual value, or the expected recoverable amount in the future is lower than its book value. If the enterprise fails to make provision for impairment in time, there may be problems such as asset value decline and loss increase, which may even lead to business difficulties and bankruptcy risks. By drawing impairment reserve, an enterprise can use the funds in the impairment reserve to make up for the losses when the assets are impaired, so as to ensure the normal operation of the enterprise and reduce the impact on shareholders' rights and interests.
To sum up, asset impairment reserve is an important measure in enterprise management, which helps enterprises to better cope with risks, realize the authenticity and accuracy of financial reports and reduce financial risks.
Legal basis:
Enterprise Accounting System in People's Republic of China (PRC)
Article 56
The enterprise shall inspect the fixed assets item by item at the end of the period. If the recoverable amount is lower than the book value due to the continuous decline of market price, obsolete technology, damage or long-term idleness, the provision for impairment of fixed assets shall be accrued.
People's Republic of China (PRC) enterprise income tax law
Article 12
When calculating taxable income, it is allowed to deduct the amortization expenses of intangible assets calculated by enterprises according to regulations; But self-created goodwill is not allowed to be deducted. In tax law, goodwill is treated as intangible assets, and the expenses of outsourcing goodwill are allowed to be deducted when the enterprise is transferred or liquidated as a whole. In normal times, the tax basis of goodwill will not be adjusted; Goodwill does not need to be tested for impairment in combination with its related asset group or asset group combination; The impairment loss of goodwill recognized by an enterprise in accordance with the asset impairment criteria shall be subject to tax adjustment, and shall not be included in the current profit and loss, and shall not be deducted before the enterprise income tax.