Amortisation
Amortisation is the systematic allocation of an intangible asset's cost over its useful economic life as a periodic expense, reducing the asset's carrying amount each period in the same way that depreciation does for tangible assets.
See it move
A company acquires a patent for €90,000 with a ten-year useful life and no residual value, so annual amortisation is €90,000 ÷ 10, or €9,000. Each year the same non-cash charge stacks up: after three years, accumulated amortisation reaches €27,000, and the carrying amount keeps falling until it reaches zero after year ten.
The formula
Variables
- initial cost (or capitalised value) of the intangible asset (€)
- residual value at the end of useful life (typically €0 for intangibles) (€)
- estimated useful life (years)
If the residual value is zero — the common case for patents and licences — annual amortisation simplifies to Cost ÷ Useful life.
Check yourself
Which statement correctly distinguishes amortisation from depreciation?