Difference Between Amortization And Depreciation

Difference Between Amortization And Depreciation

The main dissimilarities or difference between amortization and depreciation can be pointed out as follows:

1. Definition

Amortization: Process of charging off the cost of intangible assets such as patent, goodwill, trademark etc over their useful life

Depreciation: Process of charging of the cost of fixed and tangible assets such as building, machinery, plant etc. over the useful life of those assets.

2. Used For

Amortization: It is used for intangible assets such as patent, trademark, copyright etc.

Depreciation: It is used for tangible or physical assets such as building, machinery, plant etc.

3. Method Applied

Amortization: It applies only straight line method

Depreciation: Various method can be used for providing depreciation

4. Salvage Value

Amortization: Intangible assets have no salvage value after the useful life

Depreciation: Tangible assets have salvage value after their useful life

   Also Read: 

Difference Between Straight Line And Reducing Balance Method

5. Purpose

Amortization: It helps to prorate the value of intangible assets

Depreciation: It helps to recover the cost of tangible assets

Amortization Vs Depreciation (Comparison Chart)

Basis For Difference	Amortization	Depreciation
Introduction	Charging off the cost of intangible assets	Charging off the cost of tangible assets
Charging Method	Straight line method	Various methods
Applicable For	Assets of intangible nature	Physical assets
Salvage Value	No	Yes
Purpose/Objective	Prorate the value of assets	Recover the value of assets

I hope this post is helpful to understand the difference between amortization and depreciation and to make comparison between them.