The distinction between depreciation and fluctuation (in price) has been discussed herein before, along with its relevance notwithstanding repairs. The other terms are also now distinguished from depreciation.
When an existing asset, machine or building with its facilities, needs to be scrapped even though it can be physically usable, because of a new machine or designs having come into the market, there is a tendency to move away from using the existing old asset. The fall in value of the existing asset arises more out of better performance and convenience of the newcomer rather than for any deficiency in the exiting asset. Such a situation is called obsolescence of the
(existing) asset.
Depletion arises out of extraction, removal or exhaustion of the asset, and though the unit rate value of the asset may not have diminished, and may even have appreciated, yet the total residual quantum reduces with time. Natural resources or wasting assets like mines, oil wells, timbrel etc., are common examples. The asset
value is reduced or exhausted with removal or extraction. This reduction in value or expiration of cost of asset is called depletion. Whereas reduction in value of a fixed asset over time by wear and tear (or mere passage of time due to weathering by elements) constitutes depreciation, expiration of cost, or asset value reduction, by process of removal or extraction, is construed as depletion.
Amortization refers to the writing off of the proportionate value of intangible assets, such as goodwill, copyright, patents, etc., while depreciation refers to the writing off of the expired cost of tangible assets like machinery, furniture, buildings, etc. (Beyond this distinction from the term depreciation, other contexts of usage of the term amortization are not included herein above.)
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