What is Amortization of Intangible Assets?
Amortization of Intangible Assets method allows businesses to spread out the cost of an asset over its expected lifespan, reflecting its gradual consumption or deterioration. Unlike depreciation, which is used for tangible assets like buildings and equipment, amortization is primarily used for intangible assets such as patents, copyrights, and goodwill.
The primary purpose of recognizing amortization expense is to match the cost of the asset with the revenue it generates or the benefits it provides over time. By doing so, the financial statements present a more accurate representation of a company's financial performance and position.
The calculation of amortization expense typically involves dividing the cost of the asset (less its residual value) by its useful life. This results in an annual amortization expense that is recorded in the income statement and reduces the carrying amount of the asset on the balance sheet.
How to Calculate Amortization of Intangible Assets?
Amortization of Intangible Assets calculator uses Amortization Expense = (Historical Cost of Intangible Asset-Residual Value)/Useful Life Assumption to calculate the Amortization Expense, The Amortization of Intangible Assets is refered to the systematic allocation of the cost of intangible assets or the depreciation of tangible assets over their useful lives. Amortization Expense is denoted by AE symbol.
How to calculate Amortization of Intangible Assets using this online calculator? To use this online calculator for Amortization of Intangible Assets, enter Historical Cost of Intangible Asset (HCIA), Residual Value (RV) & Useful Life Assumption (ULA) and hit the calculate button. Here is how the Amortization of Intangible Assets calculation can be explained with given input values -> 100 = (2500-1800)/7.