The major differences between depreciation and amortization are as follows −
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.
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.