I just encountered a question about Depreciation from a finance colleague and realized that many people might actually be confused about this topic. The English term for ค่าเสื่อมราคา is Depreciation, which is a process used by accountants to allocate the cost of a business asset. It’s not as complicated as it seems.

Basically, depreciation has two main perspectives. The first is that the value of an asset decreases over time. The second is spreading out the expense of an expensive asset over the period you use it. For example, if a company buys a car for 100,000 baht and expects to use it for five years, it would record approximately 20,000 baht in depreciation per year.

Assets that can be depreciated must belong to you, be capable of generating income, have a determinable useful life, and be expected to last longer than one year. Common examples include vehicles, buildings, office equipment, computers, machinery, and even intangible assets like patents or copyrights. Items that cannot be depreciated include land, collectibles, and investments in stocks or bonds.

An interesting point is that there are several methods to calculate depreciation in English. The straight-line method is the simplest—you just divide the asset’s value evenly over its useful life. This is suitable for small businesses. Other methods include Double-declining balance, which allows for larger depreciation expenses in the early years when the asset is new. This method is good for businesses that want to recover the asset’s value quickly.

Another method is called Units of Production, which calculates depreciation based on actual usage, such as machine hours. This requires careful tracking of usage but provides a more accurate reflection of wear and tear.

However, there’s another related concept called Amortization, which people often confuse with Depreciation. Amortization applies to intangible assets like patents, copyrights, or loan repayments over time. While depreciation is used for tangible assets, both mostly use the straight-line method.

This distinction is important because it affects a company’s EBIT calculation. When comparing companies with many fixed assets to those with fewer, depreciation significantly impacts net profit. Sometimes, when looking at EBITDA (which adds back depreciation), the figures can look quite different.