Amortization
A term used for both accounting cost allocation and debt repayment schedules; the applicable meaning and rules must be stated.
Amortization can refer to systematic allocation of the cost of certain intangible assets over useful lives or to repayment of loan principal over time. Accounting, tax, and lending definitions differ, and goodwill is not universally amortized in financial reporting.
Frequently Asked Questions
How does amortization differ from depreciation?
Both allocate cost, but depreciation generally applies to tangible assets and amortization to selected intangible assets. Useful lives, residual values, impairment, and whether an asset is amortized depend on the accounting framework and asset.
Is goodwill amortized?
Treatment varies. Under U.S. GAAP and IFRS, public-company goodwill is generally tested for impairment rather than regularly amortized, while some private-company or tax regimes permit or require amortization.
Does amortization always create a tax saving?
No. Deductibility, timing, rates, basis, jurisdiction, elections, and deferred-tax treatment differ. Financial-statement amortization and tax amortization may not match.
Do amortizing loans always have equal payments?
No. Level-payment loans are common, but schedules can have variable rates, irregular periods, balloons, fees, interest-only phases, negative amortization, or prepayments. The contract determines the schedule.