## Which Assets Cannot Be Depreciated

Before understanding **which category depreciation falls under**, let's look at the opposite first. Some types of assets cannot be depreciated at all, such as land, collectibles, investments in stocks and bonds, personal property, or any assets used for less than one year. The reason is that these assets do not lose value over time; some may even appreciate.

## What Is (Depreciation) and Which Category Does It Belong To

In accounting, **depreciation** is the reduction in the value of tangible fixed assets over a specified period. It is an important accounting tool because it allows companies to allocate the cost of expensive assets over multiple years instead of recording the entire cost in the year of purchase.

It can be said that **depreciation belongs to** the category of estimated costs and accounting expenses, which directly affect the calculation of EBIT (Earnings Before Interest and Taxes).

## Which Assets Can Be Depreciated

According to accounting principles, assets must have the following characteristics:
- Owned by the company
- Used to generate business income
- Have a predictable useful life
- Used for more than one year

Common assets that can be depreciated include vehicles, buildings, office equipment, computers, machinery, or even intangible assets such as patents and software.

## Value and Calculation of Depreciation

Depreciation relates to two main concepts: the decrease in asset value over time and spreading the initial cost of the asset over its useful life.

For example, a company purchases a car for 100,000 THB with an expected lifespan of five years. The annual depreciation would be 20,000 THB, so each accounting period the company records the same amount continuously.

## How to Calculate Depreciation

### 1. Straight-line Method (
This is the simplest method. The operator divides the asset's value by its useful life, paying the same amount every year. The advantage is ease of use; the disadvantage is that it does not consider that maintenance costs may increase with the asset's age.

) 2. Double-declining Balance Method ###
The company can write off more value in the early years and less later on. This method is suitable for businesses that want to recover costs quickly and maximize tax deductions in the first year.

( 3. Declining Balance Method )
Depreciation is calculated as twice the straight-line rate. The company pays higher in the first year but decreases in subsequent years.

### 4. Units of Production Method (
Depreciation is based on actual usage, such as hours worked. This method is accurate because it reflects actual usage but is difficult to track.

## What Is )Amortization###

**Amortization** is similar to depreciation but applies to intangible assets, such as copyrights, patents, or trademarks. It also refers to the regular installment payments of debt, including interest and principal.

For example, a company purchases a patent for 10,000 THB with a useful life of 10 years. The amortization expense should be 1,000 THB per year.

## EBIT and EBITDA: The Importance of Depreciation

When calculating **which category depreciation belongs to** in profit calculation, it is part of the EBIT (Earnings Before Interest and Taxes).

EBIT is calculated starting from profit before tax, adding back interest expenses. Depreciation and amortization are deducted from revenue in EBIT.

EBITDA differs because depreciation and amortization are added back, reflecting earnings before these expenses.

This difference is important when comparing companies across industries because companies with many fixed assets will have higher depreciation, which may distort true profit comparisons.

## The Difference Between Depreciation and Amortization

**Depreciation** and **amortization** differ in several aspects:

**Assets:** Depreciation applies to tangible assets like buildings and machinery; amortization applies to intangible assets like copyrights and patents.

**Methods:** Depreciation can use straight-line, accelerated, or usage-based methods; amortization is mostly straight-line.

**Value Consideration:** Depreciation considers salvage value (salvage value); amortization does not.

## Application in Investment and Analysis

Understanding **which category depreciation belongs to** in financial statements helps investors analyze company performance more accurately. Since depreciation is a non-cash expense, when comparing net profit reductions due to depreciation, this amount should be added back to assess the company's actual cash flow.

Choosing the appropriate depreciation method also helps companies manage taxes better, as accelerated methods provide higher deductions in the first year.