niðurfærslu

Niðurfærslu is an Icelandic term that translates to "downward adjustment" or "write-down" in English. It refers to a reduction in the book value of an asset or liability. This can occur for various reasons, most commonly when an asset is no longer worth its recorded value on a company's balance sheet. For example, if a company's inventory becomes obsolete or its property is damaged, a niðurfærslu may be necessary to reflect the diminished value. Similarly, a liability might be written down if the amount owed is no longer expected to be paid in full.

In a financial context, a niðurfærslu impacts a company's financial statements. It reduces the asset or liability on the balance sheet and is typically recognized as an expense or loss on the income statement, thereby decreasing profitability. Accounting standards, such as International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP), provide guidelines on when and how niðurfærslu should be applied. The purpose is to ensure that financial statements present a true and fair view of the company's financial position. It is a crucial accounting procedure for maintaining accuracy in financial reporting.