Why this is mistaken
Why the model fails
Depreciation allocates a depreciable amount according to a method and estimates. Impairment responds to a standards-defined recoverability problem. An orderly schedule can continue even after expected benefits deteriorate sharply.
Diagnostic contrast
Give a production cell with a current depreciation schedule plus an adverse indicator and supported cash-flow facts. Ask what each process answers. Depreciation answers how cost is allocated; the impairment sequence asks whether the remaining carrying amount is recoverable and, if not, how a loss is measured.
Corrective rule
Do not solve an impairment question by merely shortening useful life. Identify scope and indicator, apply the recoverability screen, and then measure any loss under the governing model.
Where to watch
When this mistake may appear
- An adverse operating event occurs while a depreciable asset remains in service.
- The asset already has accumulated depreciation and the question is whether additional testing is needed.
Check your work
Your work may contain this mistake if:
- Says no impairment can exist while depreciation is being recorded.
- Changes the remaining useful life without applying the relevant impairment sequence.
- Treats accumulated depreciation as evidence that recoverability has already been tested.