Amortisation
1. Financial reporting - intangible fixed assets.
In financial accounting, amortisation is the writing down of the value of an intangible fixed asset - such as a licence - over time.
Similar to the depreciation of tangible (physical) fixed assets.
Amortisation is applying the accruals accounting principle to spread the total cost of intangible long term assets over their expected useful life.
As for depreciation, financial reporting standards generally permit the use of any systematic and consistent basis for allocating the total cost.
Examples include the straight line basis and the reducing balance basis.
Some accounting jurisdictions - including the US - use the term amortisation/amortization both for tangible and intangible assets.
Under International Financial Reporting Standards (IFRS), the relevant standards are IAS 16 for tangible longer-term assets, and IAS 38 for intangible longer-term assets.
2. Financial reporting - financial assets and liabilities.
In financial accounting, where there is a difference between the initial amount and the maturity amount of a financial asset or a financial liability, the spreading of that difference over time.
The spreading calculation is commonly made using the Effective interest method.
3. Pensions - surpluses and deficits.
The spreading of a pension scheme surplus or deficit over a period of time, often for the purposes of granting a Contributions holiday (in the case of a surplus) or calculating deficit reduction contributions (in the case of a deficit).
4. Borrowings.
The repayment or reduction of the principal amount of an obligation over time.
For example the repayment of loan principal by instalments.
5. Spreading other amounts over time.
More generally, the spreading of any amount or difference over time.
In this broader sense, amortisation can include the (financial reporting) writing down over time of the value of any fixed asset, including both tangible and intangible assets.
See also
- Accreting
- Accruals concept
- Amortise
- Amortised cost
- Amortising swap
- Average life
- Balloon payment
- Bullet maturity
- Cash flow
- Contributions holiday
- Deficit
- Depletion
- Depreciation
- EBITA
- EBITDA
- Effective interest method
- Financial reporting
- IAS 16
- IAS 38
- Impairment
- Intangible assets
- International Financial Reporting Standards (IFRS)
- Licence
- Reducing balance
- Straight line
- Surplus
- Tangible asset
