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The Difference between Amortization and Depreciation

For those business assets, amortization and depreciation are two methods of calculating value. Each year over the life of the asset, the cost of business assets can be expensed. To reduce the tax liability for the business, the expense amounts are subsequently used as a tax deduction. Amortization, depreciation, and one more common method used by businesses to spread out the cost of an asset will be reviewed in this article. The involvement of a type of asset being expensed is the key difference between all three methods.

Amortization

The practice of spreading an intangible asset’s cost over that asset’s useful life is called amortization. Physical assets are not intangible assets, per se. Intangible assets that are expensed through amortization might include the following examples:

  • Patents and trademarks
  • Franchise agreements
  • Proprietary process, such as copyrights
  • Cost of issuing bonds to raise capital
  • Organizational costs

Amortization is physically expensed on a straight-line basis, meaning the same amount is expensed in each period over the asset’s useful life, unlike depreciation. Additionally, unlike with depreciation, assets that are expensed using the amortization method typically don’t have any resale or salvage value.

When using the term amortization since it carries another meaning, it is important to note the context. As in the case of a mortgage, to calculate a series of loan payments consisting of both principal and interest in each payment, an amortization schedule is often used.

Depreciation

The expense of a fixed asset over its useful life is called depreciation. Physical assets that can be touched are fixed assets or tangible assets. Fixed or tangible assets that are commonly depreciated includes some of these examples.

  • Buildings
  • Equipment
  • Office furniture
  • Vehicles
  • Land
  • Machinery

Depreciation is calculated by subtracting the asset’s salvage value or resale value from its original cost since tangible assets might have some value at the end of their life. The expected life of the asset over the years is when depreciation is evenly different. In other words, a tax reduction for the company until the useful life of the asset has expired for the depreciated amount of expensed in each year.

An example, an office building can be used for many years before it becomes run down and is sold. With a portion of the cost being expensed in each accounting year, the cost of the building is spread out over the predicted life of the building.

A large portion of the asset’s value is expensed in the early years if the asset’s life, meaning the depreciation of some fixed assets can be done on an accelerated basis.

Special Considerations

Another way the cost of business assets can be established is by depletion. the allocation of the cost of natural resources over time is what it refers to. All three methods are a non-cash expense with no cash spent in the years they are expensed—depreciation, amortization, and depletion. The terms amortization and depreciation are often used interchangeably in other countries to refer to both tangible and intangible assets, which is an important thing to note.

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INTRODUCTION
TO FOREX TRADING

I     Advantages of the Forex Market            3
II    Basic Forex Concepts                              8
III   Orders in the Forex Market                     13
IV   Game Plan for Successful Trading       18
V    Beginner Trading Strategies                   25

Chapter 1:

ADVANTAGES OF THE
FOREX MARKET

1.1. What Is The Forex Market?

The Forex market is a place in which investors are allowed to trade foreign currencies in a given trading period. It is considered to be the world’s largest market with a daily output of 3 trillion US dollars.

The value of currencies is constantly changing every minute throughout the day, depending on the supply and demand levels. Therefore, the market is open twenty-four hours a day five days a week.

Compared to other financial mediums, the Forex market provides better security in the world of investment.

The concept of Forex trading is similar to the regular market, where participants buy and sell goods. In the Forex market, traders are buying and selling foreign currencies. There are over 100 currency pairs available in the financial markets.

There is a uniform currency exchange rate used in the global financial markets. Whatever exchange rate is used in New York, it will be the same exchange rate used in other countries.

The Forex market involves an international network of computers and brokers from all over the world.

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