- Amortization (business)
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**Amortization**, see theAmortization disambiguation page."**Amortization**is the distribution of a single lump-sumcash flow into many smaller cash flow installments, as determined by anamortization schedule . Unlike other repayment models, each repayment installment consists of both andinterest . Amortization is chiefly used inloan repayments (a common example being amortgage loan ) and insinking fund s. 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 theamortization schedule , while more money is applied to principal at the end.The

amortization calculator formula is::$P\; ,=,Acdotfrac\{1-left(frac\{1\}\{1+r\}\; ight)^n\}\{r\}$,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**In

accounting , amortization refers to expensing the acquisition cost minus the residual value ofintangible asset s (oftenintellectual property such aspatents andtrademarks orcopyrights ) 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 asgoodwill or certainbrands may be deemed to have an indefinite useful life and are therefore not subject to amortization.Amortization is recorded in the

financial statements of an entity as a reduction in the carrying value of the intangible asset in thebalance sheet and as an expense in theincome statement .Under

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*] .**ee also***

Annuity (finance theory)

*Appreciation

*Cash taxes

*Depletion (accounting)

*EBITDA

*List of real estate topics **External links*** [

*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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