Amortization of a Patent
A company purchases a patent for €50,000 with a useful life of 5 years.
- usefulLife:
- 5
- assetCost:
- 50000
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Accounting
Amortization
Allocation of the cost of an intangible asset over its useful life.
Deep dive
Amortization is the process of spreading the cost of an intangible asset, such as a patent or license, over its useful life. This reflects the consumption of the asset in financial statements. Unlike depreciation, which applies to tangible assets, amortization pertains to intangible assets.
Key formula
Asset Cost / Useful Life
Real-world examples
Pitfalls to avoid
- Forgetting to revise the asset's useful life.
- Confusing amortization with depreciation.
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