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What is depreciation and what is amortization?

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Question added by Khaled Abdelrehim ACCA DipIFR CMA , Financial Analysis Assistant General Manager , Khalda Petroleum Company
Date Posted: 2014/10/09
Malik Khalid Mahmood
by Malik Khalid Mahmood , Regional Finance Manager , Leosons International FZ LLC

Depreciation is charged on tangible assets against their usefull life, whereas amortisation is charged on intangible assets like goodwill

VENKITARAMAN KRISHNA MOORTHY VRINDAVAN
by VENKITARAMAN KRISHNA MOORTHY VRINDAVAN , Project Execution Manager & Accounts Manager , ALI INTERNATIONAL TRADING EST.

Very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally expended based on the time period over which the asset was used. Both depreciation and amortization (as well as depletion) are methods that are used to prorate the cost of a specific type of asset to the asset's life. It is important to mention that these methods are calculated by subtracting the asset's salvage value from its original cost.

Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For example, a patent on a piece of medical equipment usually has a life of17 years. The cost involved with creating the medical equipment is spread out over the life of the patent, with each portion being recorded as an expense on the company's income statement.

Depreciation, on the other hand, refers to prorating a tangible asset's cost over that asset's life. For example, an office building can be used for a number of years before it becomes run down and is sold. The cost of the building is spread out over the predicted life of the building, with a portion of the cost being expended each accounting year.

georgei assi
by georgei assi , مدير حسابات , المجموعة السورية

Depreciation: 

  Is a shortfall in the value of the progressive fixed asset except land (her rate of force - such as mine) and this shortfall for the year and appear as an expense in the income statement. 

amortization: 

Is the lack of a gradual originally undisturbed like Goodwill - Patent - Establishment expenses - expenses Deferred revenue (advertising campaign) expenses of renovation shows (decorations, flooring), Research and development expenses (pharmaceutical companies)

Ayman Esa Mustafa Farrag
by Ayman Esa Mustafa Farrag , مدير مالي , شركة الصفوف

Depreciation is the scheduled charging to expense of a tangible asset over its useful life. Amortization is the scheduled charging to expense of an intangible asset over its useful life. Thus, the key difference between amortization and depreciation is that one relates to intangible assets, and the other to tangible assets.

Faheem Ahmed
by Faheem Ahmed , Accounting, Procurement & Logistics Officer , Modelcraft International Saudi

Depreciation refers to the wear and tear of a tengable asset with the passage of time. While the same wear and tear on the un-tengable assets are known as amortization.  

FITAH MOHAMED
by FITAH MOHAMED , Financial Manager , FUEL AND ENERGY CO for transportion petroleum materials

Depreciation: 

Is 

  Physical assets decreasing 

 

  amortization 

Is decreasing the value of intangible assets

Ihab Merhi
by Ihab Merhi , Director of Finance and Administration , IBH Levant and Africa SAL

Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For example, a patent on a piece of medical equipment usually has a life of17 years. The cost involved with creating the medical equipment is spread out over the life of the patent, with each portion being recorded as an expense on the company's income statement.

 

Depreciation, on the other hand, refers to prorating a tangible asset's cost over that asset's life. For example, an office building can be used for a number of years before it becomes run down and is sold. The cost of the building is spread out over the predicted life of the building, with a portion of the cost being expensed each accounting year.

Ahmed kandil
by Ahmed kandil , Cost Controller , Battour Holding Cpompany

depreciation is the extending of fixed asset on all of his operating life 

amortization is the extending of intangible assets such as Goodwill 

moxa shah
by moxa shah , Fresher , A P Jain & Associates

depreciation charged on tangible assets while  amortization can of intangible assets as well as of expenses. 

Muhammad shahid khan
by Muhammad shahid khan , Counter Service Officer , Bank Alfalah

The gradual decrease in tangible assets is called depreciation and amortization means gradual decrease in intangible asset.

mohamed Hakim CMA CPA Candidate
by mohamed Hakim CMA CPA Candidate , Accounting Manager , Andersen saudi arabia

Fixed  assets like cars machines  need to depreciated due to use of these assets in operation 

It's normal to decrease in value 

Intangible assets like goodwill or  software

Need to be decreased in value because it has limited life time and amortized due to asset life

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