The gradual write-off of the cost of an intangible asset (like patents, software, or goodwill) over its useful life, or the repayment of a loan in installments.
Amortization has two meanings: 1) In accounting, it's the intangible asset equivalent of depreciation — spreading the cost of patents, trademarks, software licenses, and goodwill over their useful life. 2) In lending, it refers to paying off a loan through regular installments of principal and interest. Both reduce a balance over time — asset value in the first case, loan balance in the second.
A company acquires a patent for ₹10,00,000 with a 10-year useful life. Annual amortization expense = ₹1,00,000. After 5 years, the patent's book value is ₹5,00,000.
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
Amortization: intangible assets (patents, trademarks, software, copyrights, goodwill). Depreciation: tangible assets (machinery, vehicles, buildings, furniture). The concept is identical — only the asset type differs.
Yes, in most cases. Amortization of intangible assets is deductible under Section 32 of the Indian Income Tax Act, subject to conditions on the type of asset and its useful life.
The systematic allocation of the cost of a tangible asset over its useful life, representing the decline in value due to wear, use, or obsolescence.
An intangible asset representing the excess purchase price paid during an acquisition over the fair value of the target company's identifiable net assets.
A financial statement that summarizes a company's revenues, costs, and expenses over a specific period to show net profit or loss.
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