Balance Sheet - Depreciation, Obsolescence and Amortization

Depreciation refer to gradual loss of fixed assets value through wear and tear or age.

Depreciation also known as Obsolescence, Depletion or Amortization, it is refer to gradual loss of fixed assets (except land) value through wear and tear or age. Depreciation applies to the ordinary wearing out of properties, building and equipments. The amount of the depreciation value to be charged each year depend on the cost of property, expected life span, and the salvage or scrap value when the property retired.

Equipment in industries may become obsolete due to new technologies or enhancement even thought it is still serviceable. A charge for obsolescence may properly be added to the usual depreciation.

Balance Sheet - Depletion

Depletion is an allowance similar to depreciation to cover the value of natural resources such as mining, oil or natural gas taken out of the ground.

Depletion is an allowance similar to depreciation to cover the value of natural resources such as mining, oil or natural gas taken out of the ground. It is quite difficult to determine the depletion charge shown in a report is a fair one from investor standpoint because depletion charges are subject to a number of legal and accounting technicalities.

The amounts charged for depletion may be given out to shareholders as part of the dividend and normally refer to as "return of capital", it is usually not be taxable to the shareholders as income.