Compare depreciation and amortisation.

The major differences between depreciation and amortization are as follows −

Depreciation

• It determines asset useful life.

• Charged on tangible assets.

• Annual depreciation = (cost of tangible asset – salvage value)/useful life.

• Have salvage value.

• International accounting standard (IAS-16)/accounting standard (AS-6).

• Residual value is considered.

• Straight line method, reducing balance method, units of production method.

Amortisation

• Determined on the basis of its legal or economic life.

• Charged on intangible assets.

• Annual amortisation = (cost of intangible asset)/useful life.

• Don’t have salvage value.

• International accounting standards (IAS-38)/accounting standard (AS-26).

• Doesn’t considered residual value.

• Straight line method.