Depreciation vs Amortization: The Difference With Examples

Depreciation and amortization do the same job — spreading an asset's cost over the periods that use it — to different kinds of asset. Depreciation applies to tangible assets you can touch; amortization applies to intangible ones you cannot.

That is genuinely most of the distinction. The mechanics are near-identical, which is why financial statements usually report them on one line ("depreciation and amortization") and why the Lithuanian chart of accounts posts both to a single expense account, 6206 — nusidėvėjimo ir amortizacijos sąnaudos.

The comparison

	Depreciation	Amortization
Applies to	Tangible fixed assets	Intangible assets
Examples	Machinery, vehicles, buildings, furniture, IT hardware	Purchased software, licences, patents, trademarks, development costs
LT chart class	12xx	11xx
Typical method	Straight-line, declining balance, units of production	Almost always straight-line
Salvage value	Common (vehicles, machinery)	Usually zero
Contra-account	Accumulated depreciation, shown separately	Often netted against the asset
Land?	Never depreciated	—
Indefinite-life assets	—	Not amortized — tested for impairment instead

Two rows carry the real content.

Land is not depreciated. It does not wear out and has no determinable useful life. A building on it does, which is why a property purchase must be split between land and building — the split is not optional, and getting it wrong misstates every subsequent year.

Indefinite-life intangibles are not amortized. Goodwill is the main case, and it is where the two concepts genuinely part company.

The goodwill exception

Goodwill arises when a business is bought for more than the fair value of its identifiable net assets — the premium paid for the customer base, the team, the reputation.

Under IFRS (IAS 36 and IFRS 3), goodwill has an indefinite useful life and is not amortized. It is tested for impairment at least annually, and written down only when the evidence says value has been lost. The logic: goodwill does not decay on a predictable schedule, so an arbitrary annual charge would be fiction.

Under EU national GAAP the answer is often the opposite. The EU Accounting Directive permits goodwill to be amortized over its useful life, and where that life cannot be reliably estimated, over a period set by national law — typically between five and ten years. Lithuanian business accounting standards follow this amortization approach.

So "do you amortize goodwill?" has no universal answer: under IFRS no, under most EU local GAAP yes. A company reporting under both frameworks will show two different profit figures for the same year, entirely from this one difference.

Worked examples

Depreciation — a vehicle. 30,000 €, five-year life, 6,000 € expected residual value. Depreciable amount is 24,000 €, so 400 € a month:

Account	Debit	Credit
6206 Depreciation and amortization expense	400
1239 Accumulated depreciation — vehicles (−)		400

Amortization — purchased software. A 12,000 € licence with a three-year term, no residual value, so 333.33 € a month:

Account	Debit	Credit
6206 Depreciation and amortization expense	333.33
1110 Software (or accumulated amortization)		333.33

Identical shape. The only differences are the asset account and the fact that intangibles rarely carry a salvage value — nobody resells a used software licence.

What is not an intangible asset: a monthly SaaS subscription. You are buying a service period, not acquiring an asset, so it is simply an expense of the month — or a prepayment if you paid for a year up front, which is a deferral, not amortization.

The other meaning of amortization

Most of the confusion in this area comes from the word doing a second, unrelated job: loan amortization — the schedule by which a loan's principal is repaid over its term.

They share only the idea of "spreading over time". Asset amortization is an expense that reduces profit; loan amortization is a balance-sheet movement that reduces a liability as cash is paid, and only the interest portion is an expense.

	Asset amortization	Loan amortization
What is spread	The cost of an intangible asset	The repayment of borrowed principal
Income-statement effect	Amortization expense	Only the interest part
Balance-sheet effect	Asset carrying amount falls	Liability falls
Cash	None	Real payment

If someone hands you an "amortization schedule", check which one they mean before reading it.

How Nordlet handles both

There is one asset module, and the distinction lives in the asset group rather than in separate machinery. A group carries its own asset account, accumulated-depreciation account and expense account — so an intangibles group pointing at 1110 with expense 6206 amortizes software on exactly the same monthly straight-line run that depreciates the machinery group pointing at 1220. The /assets/depreciation/preview and /depreciation/post calls cover both.

That works because amortization is almost always straight-line, which is the method the engine implements. The consequences worth knowing: an intangible you would prefer to amortize on an accelerated basis needs manual journal entries, and impairment testing is not implemented — so goodwill under IFRS, or any indefinite-life intangible, is not something the module manages. Under an EU local-GAAP policy that amortizes goodwill over a fixed life, it is just another asset group.

Set up land as its own group with no depreciation posted, or keep it out of the asset module entirely — either way, never give it a useful life.

FAQ

What is the difference between depreciation and amortization?

Depreciation spreads the cost of tangible assets — machinery, vehicles, buildings. Amortization spreads the cost of intangible assets — software, licences, patents. The calculation is the same; the asset type differs, and intangibles rarely have a residual value.

Is goodwill amortized?

It depends on the framework. Under IFRS, goodwill is not amortized — it is tested annually for impairment. Under most EU national GAAP, including Lithuanian standards, goodwill is amortized over its useful life, with a statutory maximum where that life cannot be estimated reliably.

Why is land not depreciated?

Because it has no determinable useful life and does not wear out. When land and buildings are bought together, the price must be split, since only the building element is depreciated.

Is amortization the same as a loan repayment schedule?

No — that is a different use of the same word. Loan amortization is the repayment of principal over time, which reduces a liability and is not an expense; only the interest portion hits the income statement. Asset amortization is an expense that reduces an intangible asset's carrying amount.

Are depreciation and amortization reported together?

Usually yes. Financial statements commonly present a single "depreciation and amortization" line, and EBITDA adds both back. The underlying records still distinguish them, since tangible and intangible assets follow different rules.