While amortisation is used to spread the cost of intangible assets such as patents, trademarks, and copyrights, depreciation is used to spread the cost of a tangible asset. Physical assets include computers, vehicles, machinery, and office furniture.

In contrast to depreciation, amortisation is frequently paid in consistent instalments, which means that the same amount is repaid each month or year until the debt is paid off. Borrowers will often repay more at the beginning of the borrowing period in order to pay less at the end. This is because the inherent value of a tangible asset may decrease over time, which means it will be worth less as it ages or is used more.

Amortisation and depreciation are both accounting techniques used to spread the cost of assets over their useful life, but they are applied to different asset types. Depreciation is used for tangible assets such as buildings, machinery, vehicles, and equipment. These assets lose value over time because of usage, ageing, and wear and tear. The cost is gradually allocated across the asset’s expected lifespan to reflect its decreasing value.

Amortisation, in contrast, is used for intangible assets like patents, copyrights, trademarks, and software. It works in a similar way by distributing the asset’s cost over a set period, usually until its economic benefit expires. Both methods help businesses match expenses with the revenue generated from those assets, improving the accuracy of financial statements. A key difference is that depreciation may include a residual or salvage value, while amortisation generally does not. In summary, depreciation applies to physical assets, whereas amortisation applies to non-physical assets in accounting practice.