HOW CAN WE DIFFERENTIATE BETWEEN DEPRECIATION AND AMORTIZATION??

Depreciation and Amortization are two methods which help to calculate the value of business assets.

In this article, We will go through the depreciation and amortization method which helps in finding the cost of assets of the business. 

So, the key Differences between both these methods are:

1. DEPRECIATION: Depreciation is a fall in the value of tangible(thing which can be seen and touched) fixed assets.

For example, Machinery, Building, etc.

Depreciation is a measure of wearing out, consumption or other loss of value of a depreciable asset, arising from use, effluxion of time or obsolescence through technology and market changes. 

It is allocated as expense over the useful life of the asset. Depreciation expense is applicable on all tangible long-term assets whose useful life is predetermined. For example, useful life of a machine is determined and the cost of the machine is written off over its useful life. 

NOTE: Depreciation is charged on all fixed assets except land because unlike other fixed assets such as machinery, it has infinite economic life.

2. AMORTISATION: Amortisation is a fall in the value of intangible (thing which can't be seen or touched)fixed assets.

For example, Purchased Goodwill, Patent, Copyright, etc.

In other words, Amortisation is a gradual and systematic writing-off of intangible asset over its estimated useful life.  

Unlike Depreciation, the value of which assets are expensed using Amortisation method, don't have resale value.