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I’ve a confusion regarding depreciation, amortization and impairment.
Is it correct that:
1. Depreciation is the devaluation of non-current assets?
2. Amortization is the devaluation of intangible assets?
3. Impairment is the reduction in the value of assets when the book value of assets is more than their fair value which means the asset is less worth at the time of sale.
4. What is the difference between all of them then?
5. The journal entries for amortization and impairment are:
Amortization expense (debit)
Amortization liability (credit)Impairment expense (debit)
Impairment liability (credit)6. How the depreciation, amortization and impairment are recorded in the consolidation financial statement?
1 to 3 are correct.
Depreciation and amortisation are effectively different words for the same thing. Impairment is the reduction in value for unforeseen circumstances (as opposed to simply the ‘using-up’ of an asset, but it not really relevant for Paper FA.
The journal entries are the same as for depreciation which are explained in detail in my free lectures (and there is no liability involved). The are recorded in the consolidated accounts in the same way as in the accounts for single companies which again is explained in my free lectures.
Thank you so much. Could you correct me on the entries?
1. The journal entry for depreciation is:
DR Depreciation expense
CR Accumulated depreciation2. The journal entry for amortization is:
DR Amortization expense
CR Accumulated amortization3. The journal entry for impairment is:
DR impairment expense
CR non-current asset4. In consolidation, the depreciation expense will be less from Group retained earnings while accumulated depreciation will be less from non-current asset in SOFP and same treatment goes for amortization?
5. In consolidation, the impairment expense will be less from Group retained earnings while reducing the value of non-current asset?
6. You said that ‘Impairment is the reduction in value of an asset for unforeseen circumstances as opposed to simply the ‘using-up’ of an asset’. Is that true that impairment is actually the decrease in the market value of an asset which happens due to any damage to an asset, any natural disaster or simply change in consumer demand etc?
7. I have seen that you used market value and fair value interchangeably but what is the distinction?
Is that alright?
I am sorry but this forum is to help people who are studying for the Paper FA exam. You are asking questions in the forums for many different ACCA exams – you are obviously not studying for Paper FA.
Everything needed to be able to pass the Paper FA exam is covered in my free FA lectures (and I really don’t know why you are quoting again journal entries that are stated in the notes and the lectures).
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