Depreciation spreads out the cost of a tangible asset over its useful life, depletion allocates the cost of extracting natural resources, such as timber, minerals, and oil from the earth, and amortization is the deduction of intangible assets over a specified time period; typically the life of an asset.

What is difference between amortization and depletion?

Amortization is a systematic allocation of cost of an intangible asset across its useful life. Depletion is the reduction in the value of a natural resource as its supply is extracted and utilized.

What’s the difference between depreciation and depletion?

Depreciation specifically refers to most tangible assets such as equipment and automobiles, but such tangible assets specifically exclude natural resources. Depletion is the form of depreciation that refers to natural resource assets such as mines, gravel pits, oil wells and the such.

What’s the difference between depreciation, depletion and amortization?

Amortization is for Intangible assets whereas depreciation is for tangible fixed assets. Examples of intangible assets are copyrights, patents, software, goodwill, etc. Depletion. When dealing with a natural resource also referred as a mineral asset the concept of depreciation or amortization cannot be applied.

What’s the difference between amortization and replacement cost?

Amortization of intangibles is the process of expensing the cost of an intangible asset over the projected life of the asset. A replacement cost is an amount that it would cost to replace an asset of a company at the same or equal value.

How is the depreciation of an asset calculated?

Since tangible assets might have some value at the end of their life, depreciation is calculated by subtracting the asset’s salvage value or resale value from its original cost. The difference is depreciated evenly over the years of the expected life of the asset.

Which is an example of amortization of intangible assets?

Example – A company charging 10% depreciation on all their buildings, 25% depreciation on laptops, etc. Prorating cost of an “Intangible Asset” over the period during which benefits of this asset are estimated to last is called Amortization. The concept of amortization is also used with leases & debt repayment.