- Amortization (business)
"For other uses of Amortization, see the
Amortizationdisambiguation page."Amortization is the distribution of a single lump-sum cash flowinto many smaller cash flow installments, as determined by an amortization schedule. Unlike other repayment models, each repayment installment consists of both and interest. Amortization is chiefly used in loanrepayments (a common example being a mortgage loan) and in sinking funds. Payments are divided into equal amounts for the duration of the loan, making it the simplest repayment model. A greater amount of the payment is applied to interest at the beginning of the amortization schedule, while more money is applied to principal at the end.
amortization calculatorformula is::,
where: "P" is the principal amount borrowed, "A" is the periodic payment, "r" is the periodic interest rate divided by 100 (annual interest rate also divided by 12 in case of monthly installments), and "n" is the total number of payments (for a 30-year loan with monthly payments "n" = 30 × 12 = 360).
Negative amortization(also called deferred interest) occurs if the payments made do not cover the interest due. The remaining interest owed is added to the outstanding loan balance, making it larger than the original loan amount.
accounting, amortization refers to expensing the acquisition cost minus the residual value of intangible assets (often intellectual propertysuch as patentsand trademarksor copyrights) in a systematic manner over their estimated useful economic lives so as to reflect their consumption, expiration, obsolescence or other decline in value as a result of use or the passage of time.
A corresponding concept for tangible assets is
depreciation. Methodologies for allocating amortization to each accounting period are generally the same as for depreciation. However, many intangible assets such as goodwillor certain brandsmay be deemed to have an indefinite useful life and are therefore not subject to amortization.
Amortization is recorded in the
financial statementsof an entity as a reduction in the carrying value of the intangible asset in the balance sheetand as an expense in the income statement.
International Financial Reporting Standards, guidance on accounting for the amortization of intangible assets is contained in [http://www.iasb.org/NR/rdonlyres/E52C2F1A-DA51-4CFC-A363-9E84920D6EED/0/IAS38.pdf International Accounting Standard 38, Intangible Assets] . Under United States generally accepted accounting principles (GAAP), the primary guidance is contained in [http://www.fasb.org/pdf/fas142.pdf Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets] .
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* [http://www.ofdict.com/definition/amortization.php Amortization general details in simple terms]
* [http://bretwhissel.net/amortization/amortize.html Multiple Variable amortization calculator]
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