Depreciation and other Similar Terms

Depreciation, depletion, and amortisation are all terms that describe the same fundamental idea: the gradual loss of usefulness of an asset over time. Because the accounting treatment for all three is similar — each one involves writing off the cost of an asset over its useful life — they are often discussed together.

The key difference lies in the type of asset each term applies to.

• Depreciation is used for tangible fixed assets like machinery, buildings, furniture, and vehicles. These are physical assets that wear out, deteriorate, or become obsolete.
• Depletion is used specifically for natural resources or wasting assets — things like mines, oil wells, and quarries. As these resources are extracted and sold, the asset's value is literally "depleted" or used up. The accounting process of writing off this cost is called depletion.
• Amortisation is used for intangible assets — assets that have no physical form but still have value and a limited useful life. Examples include patents, copyrights, trademarks, and goodwill. The process of systematically writing off the cost of an intangible asset is called amortisation. …