Financial Accounting › Depreciation & Amortization
What is the difference between depreciation, amortization and impairment?
AdvancedAnswer
Depreciation spreads the cost of tangible assets, amortization spreads intangibles (e.g. patents, software), and impairment is a one-off write-down when an asset's recoverable amount falls below its carrying value.
Machine -> depreciation; Patent -> amortization; Sudden value drop -> impairmentReal-world example Writing goodwill down after a failed acquisition is an impairment, not depreciation.