What are the similarities and differences among the terms depreciation, depletion and amortization?
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Answer:
Depreciation spreads out the cost of a tangible asset over its useful life, depletion allocates the cost of extracting natural resources, such as timber, minerals, and oil from the earth, and amortization is the deduction of intangible assets over a specified time period; typically the life of an asset.
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Answer
Depreciation, depletion, and amortization (DD&A) is an accounting technique that enables companies to gradually expense various different resources of economic value over time in order to match costs to revenue
Depreciation spreads out the cost of a tangible asset over its useful life, depletion allocates the cost of extracting natural resources, such as timber, minerals, and oil from the earth, and amortization is the deduction of intangible assets over a specified time period; typically the life of an asset.
Depreciation and amortization are common to almost every industry, while depletion is usually used only by energy and natural-resource firms. The use of all three, therefore, is often associated with the acquisition, exploration, and development of new oil and natural gas reserves.
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