Amortisations definitions
| Word backwards | snoitasitroma |
|---|---|
| Part of speech | The word "amortisations" is a noun. |
| Syllabic division | a-mor-ti-sa-tions |
| Plural | The plural of the word "amortisation" is "amortisations." |
| Total letters | 13 |
| Vogais (3) | a,o,i |
| Consonants (5) | m,r,t,s,n |
What is Amortisation?
Amortisation is the process of spreading out the cost of an intangible asset over its useful life. This accounting method helps businesses allocate the cost of intangible assets such as patents, trademarks, and copyrights over time.
How Does Amortisation Work?
When a company purchases an intangible asset, they cannot expense the entire cost in one go. Instead, they must amortise it over the asset's useful life. This process involves deducting a portion of the asset's cost as an expense each accounting period.
Importance of Amortisation
Amortisation is essential for accurately reflecting the cost of intangible assets on a company's financial statements. By spreading the cost over time, businesses can match the expense with the revenue generated by the asset, providing a more accurate depiction of the asset's value.
Calculating Amortisation
The formula for calculating amortisation is straightforward: (Cost of Asset - Residual Value) / Useful Life. The result is the amount that should be amortised each period until the asset is fully expensed.
Key Differences Between Amortisation and Depreciation
While amortisation is used for intangible assets, depreciation is used for tangible assets. Depreciation allocates the cost of assets like buildings and machinery over their useful life, while amortisation does the same for intangible assets.
Conclusion
Amortisation is a crucial accounting tool that helps businesses accurately account for the cost of intangible assets. By spreading out the cost over time, companies can better reflect the true value of these assets on their financial statements.
Amortisations Examples
- The company spread the cost of the new machinery over several years through amortisations.
- The accountant calculated the annual amortisations for the intangible assets.
- The amortisations for the loan were reflected in the company's financial statements.
- The business used straight-line method for calculating amortisations on the building.
- The amortisations for the software development were expensed over a period of 5 years.
- The company followed the accounting standards for reporting amortisations on goodwill.
- The financial analyst reviewed the schedule of debt amortisations for the upcoming year.
- The CFO explained the concept of amortisations to the shareholders during the meeting.
- The auditor verified the accuracy of the amortisations recorded in the financial statements.
- The company adjusted the amortisations schedule based on the new tax regulations.