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in short,
Depreciation is allocating the expense of a Tangible asset over it's useful life. (Machines, computers...etc)
Amortization is the same as depreciation, but used for Intangible assets or liabilities. (patents, trade marks... etc)
Depletion is used for natural Resources assets (minerals, oil...etc) whose quantity decreases by extracting.
Depreciation is an expense calculated on the wear tear assumption on the asset and charged to the Income Statement for the period.
Amortisation is the allocation of cost over a period of time. Usually it is done with the intangible asset such as prepayments related to an expense and allocating it over the period for which it was paid.
Depletion is the reduction in quantity of an asset e.g. reduction in the quantity of a reserve (such as natural resource e.g. coal available in a mine).
The main objective of all three of the above mentioned is to determine the actual worth of an asset and to charge the costs to the period with which it is actually related hence follwing the matching principle of accounting.
It is a natural phenomenon that the value of assets decreases with the passage of time as there is hardly any asset which will remain forever and give the equal amounts of benefit every year. So, two major terms in this regard had been evolved which are collocated many times with each other; they are depreciation and amortisation. Both the Depreciation and Amortization are meant to reduce the value of the asset year by year. So what are the differences between Depreciation and Amortization? You can see below.
A technique used to determine the loss in the value of the long-term fixed tangible asset due to usage, wear and tear, age or change in market conditions is known as depreciation. Long term fixed tangible assets mean the assets which are owned by the company for more than three years, and they can be seen & touched. The depreciation is charged as a capital expenditure against the revenue generated from the asset during the year i.e. matching concept.
Amortization is a method of measuring the loss in the value of long-term fixed intangible assets due to the passage of time, to know about their decreased worth is known as amortization. Long term fixed intangible assets are the assets which are owned by the entity for more than three years, but they do not exist in its material form like computer software, license, franchises, etc. Similarly, like depreciation, the amount of amortisation is also shown on the assets side of the Balance Sheet as a reduction in the intangible asset.
1) depreciation on tangible assets
2) amortization on intangible assets
3) Depletion on Natural Reserve
Depreciation: Is the periodic charge on Fixed Assets which is charged to the income statement and results in lowering the Fixed Assets to represent their Net Realisable Value. This is representative of the effect of the physical wear and tear a Fixed Asset suffers over its useful life.
Depletion: Is the reduction in value of a mining asset or a natural reserve due to extraction. The extraction causes a depletion in the reserves of the natural asset and the charge to show the reduction is known as depletion (e.g Diamond, Coal and Gold mines)
Amortisation: Is the systematic allocation of cost of an intangible asset over a period of time ( Such as Patents, Trademarks and license. It can also refer to the repayment of loan principal over time.
