Differences Between Depreciation and Amortization

Many people use amortization and depreciation interchangeably thinking that they both mean the same thing, however they both are different and here are some of the differences between the two –

1. Depreciation can be defined as the reduction in the value of an asset due to usage, passage of time, wear and tear, technologically outdated or obsolescence and other such factors, while amortization is defined as spreading of cost of the asset over the useful life of the asset.

2. Example of depreciation is that suppose the value of the asset is $10000 and rate of depreciation is 20 percent then depreciation will be $2000. While in case of amortization suppose the company has purchased the patent of $10000 for a period of 10 years than the every year $1000 will be amortized.

3. Depreciation is used for tangible assets like building, furniture, plant and machinery while amortization is used for intangible assets like patents, goodwill, trademarks etc…

Hence from the above it can seen that though both depreciation and amortization are use to allocate the cost of the asset over its useful life, however they differ in terms of their calculations as well as nature of the asset and hence they should be used accordingly.

0 comments… add one

Leave a Comment


Related pages


globalisation benefits and disadvantagesnasdaq full formpredetermine definitionexamples of conglomerate companiesreducing balance method of depreciationdisadvantages of absorption costingcharacteristics of forward contractdemerits of mixed economydifference between a finance lease and an operating leasedifference between bank rate and msfexamples of period costsdisadvantages of planned economyadvantages of lifo methodhigher education advantages and disadvantagesunbilled accounts receivable journal entryfinancial derivatives pptadvantages and disadvantages of skimming pricingadvantages and disadvantages of premium pricingexchange rate quotationfunctions of derivative marketadvantages and disadvantages of job productionwhat is full form of slrdistinction between micro and macro economicscapitalist economy vs socialist economya study of non operating expenses of proprietary concernskimming pricing strategy examplestypes of crossing of chequeunsystematicdistinguish between normal goods and inferior goodscross exchange rate formulaadvantages and disadvantages of a dictatorshipadvantages and disadvantages of carbon creditsforex reserves meaningexplain liquidity ratiowhat is autocratic leadershipskimming vs penetration pricingwhat are the disadvantages of budgetingmain features of globalisationjournal entry of outstanding expensesadvantages and disadvantages market economydcf valuation methodcomplementary goodssimilarities between sales and marketingadvantages and disadvantages of carbon creditsforex reserves meaningmarket skimming price strategyfull convertibility of currencymerit and demerit of plasticadvantages and disadvantages of job productionwhat is barter trade systemmixed economy definition economicsactivity ratios formulaexamples of conglomerate merger companiesintroduction of demat accountdefinition of a traditional economydifference between hire purchase and installmentdeflation advantages and disadvantageswhat is perpetual successionmixed economy definition economicssystematic vs unsystematic riskcomparison between capitalism and socialismbad debts journal entrydefine demand depositbhel financefull form of tds in bankingcapm in financial managementsalaries payable journal entrydebit cards advantages and disadvantagestypes of crossing chequecommand economy disadvantagescrr and slr meaningvertical merger examplediversifiable and nondiversifiable riskconglomerate corporation definitionunclaimed dividend definitionmeaning of pros and cons in hindiadvantages of jit productionvertical merger companies examplesdifference between income and substitution effectrevaluation of assets journal entry