Amortisation vs. Depreciation

Meaning of Amortisation and Depreciation:

The meaning of both of this is to reduce value of the assets over a period of time, either by recovering or Written off. But, both of this are very different to one other and the main difference is the use of this method while reducing the value of an asset.


There are two types of assets:

  • Intangible assets: Intangible Assets are Goodwill, Patent etc. This is written off by Amortisation. 
  • Tangible assets: tangible assets are like machinery and equipment, this are recovered by Depreciation.

BASE OF COMPARISION
AMORTIZATION
DEPRECIATION
INTRODUCTION
Amortization is a one type of cost recovering technique used for intangible assets.
Same as amortization, this one is used for the tangible assets over a period of time.
MEANING
To Amortize means to write off cost or pay debt
To Depreciate means to loss the value
DEFENITION
Amortization is a method used to write off cost over a period of time on the Intangible assets.
Depreciation means to recover the loss of money on the tangible assets. 
AIM
To capitalize value over a fixed period of time
To allocate amount over a period of time.
APPLYON WHICH ASSETS
Intangible assets i.e. Patent , copyright, goodwill, trademark, royalty etc.
Tangible Assets i.e. land and building , machinery, etc.
ACCOUNTING SRANDARD
It uses Accounting standard 26
It uses Accounting Standard 6
 CALCULATION METHOD
Straight line method, reducing balance method, Annuity increasing balance method , Increasing balance method, Bullet method etc.
Straight line method, Down value method.
 BALANCE SHEET EFFECT
It directly affects the balance sheet by reducing assets.
It indirectly affects balance sheet by cumulative depreciation amount.
SALVAGE VALUE
In amortization method, there is no salvage value because the life of intangible asset has expired.
In Depreciation method, at the end of the period there is a possibility of salvage value. This will add to the depreciation.
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