What is meant by depletion and obsolescence?

Depreciation, Amortization and Depletion Depreciation: It means decline in the value of fixed assets due to use, passage of time or obsolescence or diminution in intrinsic value of the asset due to use and/or lapse of time.

Is amortization also called depletion?

The systematic expensing of the cost of natural resources is referred to as depletion. The systematic expensing of other long-term costs such as bond issue costs and organization costs is referred to as amortization.

What is depletion in intangible asset?

The term ‘Depletion’ refers to the physical deterioration by the exhaustion of natural resources (ore deposits in mines, oil wells, quarries, timber stands etc.) For the purpose of intangible assets, the term ‘Amortization’ is used.

What is depletion in economics?

Depletion is an accrual accounting technique used to allocate the cost of extracting natural resources such as timber, minerals, and oil from the earth. Like depreciation and amortization, depletion is a non-cash expense that lowers the cost value of an asset incrementally through scheduled charges to income.

What is amortization in accounting?

Amortization is an accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time. Concerning a loan, amortization focuses on spreading out loan payments over time. When applied to an asset, amortization is similar to depreciation.

What is amortization and depreciation?

Amortization is the practice of spreading an intangible asset’s cost over that asset’s useful life. Depreciation is the expensing of a fixed asset over its useful life.

What is obsolescence in accounting?

What is Obsolescence? Obsolescence is a notable reduction in the utility of an inventory item or fixed asset. The determination of obsolescence typically results in a write-down of the inventory item or asset to reflect its reduced value.

What do you mean by amortization?

What is depletion with example?

Depletion is the exhaustion of natural resources as a result of their removal. Examples are oil, minerals and timber. Depletion reduces a company’s taxable income.

What is amortization with example?

Amortization is most commonly used for the gradual write-down of the cost of those intangible assets that have a specific useful life. Examples of intangible assets are patents, copyrights, taxi licenses, and trademarks. The concept also applies to such items as the discount on notes receivable and deferred charges.

What is obsolescence example?

Examples of Functional Obsolescence Within the technology industry, the constantly changing parade of smartphones and the evolution of smartphone technology is another example of functional obsolescence. New smartphones are able to do more and include more features that make old ones functionally obsolete.