Introduction

In this lecture, we look at fixed assets and introduce the concept of depreciation and amortisation.

Depreciation is an accounting charge which is intended to spread the cost of a fixed asset over its useful life. If you buy a car for £10,000, and it has a life of 10 years, it is "fairer" to charge an expense of £1000 each year for 10 years, than an expense of £10,000 in the first year. This does not affect how much is paid for the car or when, it is simply an accounting concept - smoothing the charge is a very common principle in accounting.

Amortisaton is exactly the same but is applied to intangible assets (see next lecture) rather than physical assets.