Amortization is an accounting technique used to pay off debts such as loans by spreading out the payments over a specific period. In terms of intangible assets, this technique is used to spread out the expenses of the assets.
Lenders use this technique to present the repayment schedule of a loan according to the maturity date. While paying off loans, regular payments of both interest and principal are paid so that the loan will be settled within the time of maturity.
The formula for calculating amortization of loan:
For intangible assets, this technique helps measure the consumption of the value of assets throughout the projected life. This is similar to depreciation and depletion. Through amortization of intangible assets, the firm writes off the cost of expenses in the useful life of the assets.
