What is Amortization?

The term “amortization” is the periodic reduction in value of an intangible asset or loan over time.

In relation to an asset, amortization is the accounting process of expensing the cost and measures the consumption of the value of an intangible asset over its useful life such as examples of intangible assets that are expensed through amortization include various types of intellectual property like patent, license, trademark, copyright etc.

While applied to a loan, it can refer to the paying off debt in regular instalments over a period of time, such as in the case of a mortgage or car loan.

Formula of amortization

(i) Per year = Initial cost of Intangible Asset / Useful life of Intangible Asset

(ii) Per month = Amortization per year / 12

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