what is extact meaning of Depreciation and Amortzation..?



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Depreciation is a expense and it reduced the value of asset by using it. & what about this Amortization it is a value of Asset for future. its correct or Please clear this doubt.

2 Answer(s)


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Depreciation is method of recovering the cost of a tangible asset over its useful life. Eg: A car or a machine the value of which will decrease as it is used year after year.

depreciation indicates how much of an asset's value has been used up.

Amortization is the same process as depreciation, but is done only for intangible assets. Intangible assets are those items that have value, but those that we can't touch. For eg: a patent, company logo, trademark, goodwill etc which have value but cannot be touched or seen like other tangible assets like a truck or a car or a machine.

In short, Depreciation is a method of allocating the cost of a tangible asset over its useful life
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Amortization is the deduction of capital expenses over the asset's life which measures the consumption of the value of intangible assets.

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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 of 17 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.