Sometimes the terms depletion, amortization etc., are used interchangeably with depreciation. These terms in fact are used in a different context. Let us understand the distinction between depreciation and such related concepts.

Depreciation and Depletion: The term depletion is used in respect of the extraction of natural resources from wasting assets suck, as quarries, mines, etc. and refers to the reduction in the available quantity of the material. As a matter of fact, depletion is regarded as a method of computing the depreciation on wasting assets. Thus, it has a limited application. Depreciation on the other hand, is a wider term and refers to a reduction in the value of all kinds of fixed assets arising from their wear and tear.

Depreciation and Amortization: The terms amortization refers to writing off the proportionate value of the intangible assets such as copyrights, patents, goodwill, etc., while depreciation refers to the writing off the expired cost of the tangible assets like machinery, furniture, building etc.

Depreciation and Obsolescence: Obsolescence refers to the decrease in usefulness arising on account of the external factors like change in technology, new inventions, change of style, etc. Thus, it is caused mainly on account of the asset becoming out of date, old fashioned. Depreciation on the other hand, is a functional loss generally arising on account of wear and tear. Obsolescence, in fact, is regarded as one of the causes of depreciation.