Depreciation and Related Terms:
Some phrases, such as:
Amortisation is also used in conjunction with depreciation.
This is owing to the comparable accounting treatment given to them based on the closeness of their outcomes since they indicate the expiration of the usefulness of distinct assets.
The word depletion is used in the context of the exploitation of natural resources such as mines, quarries, and so on, which diminishes the quantity of the material or asset available.
For example, suppose a company is in the mining sector and buys a coal mine for $100,000.
The value of a coal mine then decreases as coal is extracted from the mine.
Depletion is the term used to describe the fall in the value of a mine.
The primary distinction between depletion and depreciation is that the former is concerned with the exhaustion of economic resources, whilst the latter is concerned with the use of an asset.
Regardless, the effect is a reduction in the number of natural resources and the expiration of service potential.
As a result, depletion and depreciation are treated similarly in accounting.
Amortisation is the process of deducting the cost of intangible assets such as patents, copyright, trademarks, franchises, and goodwill that have been used for a fixed length of time.
The technique for amortisation, or the periodic write-off of a portion of the cost of intangible assets, is the same as that for fixed asset depreciation.
For example, suppose a company spends $100,000 for a patent. If the business firm expects that its useful life will be ten years, it must write off ‘10,000 over ten years.
Technically, the amount written off is referred to as referred regarded as amortisation.