Depreciation vs Amortization vs Depletion
All three reduce asset value, but they're used for different types of assets.
Depreciation
Used for: Tangible Fixed Assets
Examples: Building, Machinery, Furniture, Vehicles
Cause: Physical wear & tear, obsolescence
Amortization
Used for: Intangible Assets
Examples: Patents, Copyrights, Goodwill, Trademarks
Cause: Expiry of legal rights, passage of time
Example: Patent valid for 20 years, cost ₹20 Lakhs
Annual Amortization: ₹1 Lakh
Depletion
Used for: Natural Resources (Wasting Assets)
Examples: Mines, Oil wells, Quarries, Forests
Cause: Extraction/consumption of resource
Example: Coal mine with 1,00,000 tons, cost ₹1 Crore
Per ton depletion: ₹1,000
If 10,000 tons extracted: Depletion = ₹10 Lakhs
Comparison Table
| Aspect | Depreciation | Amortization | Depletion |
|---|---|---|---|
| Asset Type | Tangible Fixed | Intangible | Natural Resources |
| Example | Machinery | Patent | Coal Mine |
| Cause | Wear & tear | Time expiry | Extraction |
| Method | SLM, WDV | Usually SLM | Units of production |
Quiz
Test Your Knowledge
Question 1 of 3
1. Amortization is used for:
💡 Final Wisdom: "Depreciation = Physical assets aging. Amortization = Legal rights expiring. Depletion = Natural resources depleting. Same concept, different names!"