What is the difference between depreciation & Impairment of asset?
Amit Agrawal
(Chartered Accountant)
(75 Points)
Replied 17 April 2010
Depreciation is reduction in value of an asset due to use , effluxation (passage of time) , obsolesence.(Normal reasons)
Impairment of asset is generally due to damage caused by fire, flood, short circuit, etc (Abnormal reason generally)
Regards
gokul
(Accountant)
(126 Points)
Replied 17 April 2010
When an assets' Carrying Amount (net after dep.) is less than its Recoverable Amount, then there exists an Impairment and accordingly Impairment loss is to be recognised.
What is Recoverable Amount ?
Higher of
Net Selling Price - Fair value less disposal cost
Value in use - Present value of estimated future cash flows that would flow from continuing use of the asset.
C.A Rohit Gambhir
(C.A)
(275 Points)
Replied 02 May 2010
Depreciation is the normal amortisation of asset value reduced by salvage value. This amortisation is due to normal usage of the asset to match its charge against the matching revenue. While impairment is reduction in the revenue / cashflow generating capacity due to some internal or external factors.
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