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.
What it is
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.
If you trained under a national GAAP
DE · HGBWhere national-GAAP intuition diverges from the international standard
HGB (German)
HGB approaches intangibles from the premise that every capitalised intangible has a limited life and must be written down over it through planned amortisation. There is no category of an intangible that simply sits on the balance sheet untouched. Acquired goodwill is drawn into the same logic: it is amortised over the years expected to benefit from it, with a ten-year default where a reliable estimate is not available. The result is a steady, systematic charge against profit for every intangible the company carries.
IFRS
IFRS splits intangibles into those with a finite life and those with an indefinite life. Finite-life intangibles are amortised over that life much as under HGB. Indefinite-life intangibles — and goodwill, which IFRS treats as a special case — are not amortised at all; their carrying amount is left in place and instead tested for impairment each year under IAS 36. So the concept of amortisation covers a narrower set of assets under IFRS than it does under HGB, where the notion of an intangible that is never amortised does not exist.
Edlintics’ own explanatory summary — not official IFRS Foundation or national standard-setter guidance.
Check yourself
Which statement correctly distinguishes amortisation from depreciation?