The overall methodologies that can be used for depreciation and amortization calculations are governed by generally accepted accounting principles. For an intangible asset such as a patent, the reduction in value is called amortization. For a physical asset such as a computer or motor vehicle, the reduction in value is called depreciation. But as the asset is used over time, its value on the balance sheet is reduced to reflect the fact that assets are typically worn out or used up eventually.
Initially, the typical tangible business asset's book value is its net acquisition or creation cost. Fundamentally, the book value of an asset is the value at which it is carried on the company balance sheet.
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