Depreciation and amortization (as well as depletion) are both methods used to spread the cost of specific types of assets over their lives. It is important to mention that these methods are calculated by subtracting the salvage value of the asset from the original cost. Amortization typically refers to spreading the cost of an intangible asset over the useful life of that asset. For example, a patent for a medical device typically has a 17-year life. The costs involved in creating the medical device are spread over the life of the patent, with each portion recorded in the company's income statement. Depreciation, on the other hand, is the proportional allocation of the life of a tangible asset. For example, an office building can be used for many years before it is destroyed. The cost of the building is spread over the expected life of the building, with a portion of the cost being expensed in each fiscal year." Depletion" refers to the allocation of the costs of natural resources over time. For example, an oil well has a limited life before all the oil is pumped out. As a result, well setup costs are distributed over the expected life of the well. It is important to note that in some places, such as Canada, the terms amortization and depreciation are often used interchangeably to refer to both tangible and intangible assets. Taking a closer look at depreciation, investors should understand that in some cases, each gain and improvement in book value may simply be a stroke of the pen. Earnings and net asset values boosted by the choice of depreciation assumptions are not associated with improved business performance, and in turn do not indicate strong long-term fundamentals.