amortization


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Related to amortization: depreciation, EBITDA, Amortization schedule

Amortization

The reduction of a debt incurred, for example, in the purchase of stocks or bonds, by regular payments consisting of interest and part of the principal made over a specified time period upon the expiration of which the entire debt is repaid. A mortgage is amortized when it is repaid with periodic payments over a particular term. After a certain portion of each payment is applied to the interest on the debt, any balance reduces the principal.

The allocation of the cost of an intangible asset, for example, a patent or Copyright, over its estimated useful life that is considered an expense of doing business and is used to offset the earnings of the asset by its declining value. If an intangible asset has an indefinite life, such as good will, it cannot be amortized.

Amortization is not the same as depreciation, which is the allocation of the original cost of a tangible asset computed over its anticipated useful life, based on its physical wear and tear and the passage of time. Amortization of intangible assets and depreciation of tangible assets are used for tax purposes to reduce the yearly income generated by the assets by their decreasing values so that the tax imposed upon the earnings of assets is less. Amortization differs from depletion, which is a reduction in the book value of a natural resource, such as a mineral, resulting from its conversion into a marketable product. Depletion is used for a similar tax purpose as amortization and depreciation—to reduce the yearly income generated by the asset by the expenses involved in its sale so that less tax will be due.

amortization

n. a periodic payment plan to pay a debt in which the interest and a portion of the principal is included in each payment by an established mathematical formula. Most commonly it is used on a real property loan or financing of an automobile or other purchase. By figuring the interest on the declining principal and the number of years of the loan, the monthly payments are averaged and determined. Since the main portion of the early payments is interest, the principal does not decline rapidly until the latter stages of the loan term. If the amortization leaves a principal balance at the close of the time for repayment, this final lump sum is called a "balloon" payment. (See: promissory note)

amortization

noun clearance, defrayal, disbursement, discharge, extinction of a debt, extinnuishment of claim, liquidation of a debt, payment, remittance, satisfaction
Associated concepts: amortization contract, amortization of a mortgage, amortize a loan
See also: discharge, payment

AMORTIZATION, contracts, English law. An alienation of lands or tenements in mortmain. 2 Stat. Ed. I.
     2. The reduction of the property of lands or tenements to mortmain.

References in periodicals archive ?
A $1,200,000 new mortgage for a 5 year arm, 15 year balloon, 25 year amortization schedule on a 48 unit, 5 story walk-up in Bronx, NY.
If the company determines a useful life is finite, it should assign that life to the asset and begin amortization over that period.
The goodwill is amortized over 10 years for tax purposes and there is no book amortization under FAS 142.
Since many acquired intangible assets are difficult to measure, and have frequently changing values, this additional classification process is likely to add volatility to the financial reporting process and once again open the door for earnings management through asset-classification selection and the trade-off between intangible amortization and potential goodwill impairment write-offs.
Sections 167(f) and 197 of the Internal Revenue Code provide comprehensive rules for the depreciation and amortization of many intangible assets.
First, they are likely to report their cash earnings very prominently to make sure nobody misses the impact of goodwill amortization.
The revenue procedure provides specific rules for the adoption of the amortization methods.
18x, respectively, and PE is more than fully able to prepay its note amortization for the year.
However, a change in useful life under one of the amortization methods described in the revenue procedure is not a change in accounting method.
Supreme Court held a taxpayer must satisfy the "substantial burden" of proving an asset had an accurately determinable value to sustain amortization deductions.
Interest cost plus transition amortization exceeded 74 percent for all but three immature field test companies.
Additionally, investors are protected from deterioration in asset quality, seller insolvency or servicer default by early amortization triggers.