What is the difference between impairment and depreciation?

Question

Accepted Answer

Impairment is a sudden and significant decrease in the value of an asset, while depreciation is the gradual decrease in value over time.

Impairment is usually a one-time event that occurs when the value of an asset drops below its carrying amount.
Depreciation is the allocation of the cost of an asset over its useful life, reflecting the wear and tear on the asset.
Impairment is recognized when the asset's recoverable amount is less than its carrying amount, while depreciation is a systematic allocation of the asset's cost.
Examples of impairment include a sudden decline in market value or a significant change in the asset's intended use, while depreciation is seen in the wear and tear of machinery or equipment over time.

Top Macquarie Group Executive interview questions & answers