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Amortization, or amortizing, is providing for the gradual extinguishment of a dollar amount thorough periodic interest payments. The formula for calculating the amortization on an intangible asset is similar to the one used for calculating straight-line depreciation. You divide the initial cost of the intangible asset by the estimated useful life of the intangible asset. For example, if it costs $10,000 to acquire a patent and it has an estimated useful life of ten years, the amortized amount per year equals $1,000. The amount of amortization accumulated since the asset was acquired appears on the balance sheet as a deduction under the amortized asset. Formula: Initial Cost / Useful Life = amortization per year: for example, $10,000 / 10 = $1,000 per Year |
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