amortize

(verb)

To wipe out (a debt, liability etc. ) gradually or in installments.

Examples of amortize in the following topics:

  • Amortized Cost Method

    • Debt held to maturity is shown on the balance sheet at the amortized acquisition cost.
    • Debt held to maturity is shown on the balance sheet at the amortized acquisition cost.
    • To find the amortized acquisition cost the securities are amortized like a mortgage or a bond.
    • To find the amortized acquisition cost the securities are amortized like a mortgage or a bond.
    • Explain how a company would apply the amortized cost method to a debt held to maturity

  • Limited-Life Impairment

    • As a result of the impairment, the amortization expense on the patent should be adjusted to reflect the new value.
    • The amortization amount is equal to the difference between the intangible asset cost and the asset residual value.
    • That calculated amount is credited to either the appropriate intangible asset account or accumulated amortization account .
    • Asset amortization for future periods should be adjusted due to the increase in value.
    • A bond's discount amount must be amortized over the term of the bond.

  • Bonds Issued at a Premium

    • This would make the amortization rate of the bond's premium equal to $1,000 per year.
    • When the business pays interest, it must also amortize the bond premium at that time.
    • The company must debit the bond premium account by the amortization rate.
    • An example of an amortization schedule of a $100,000 loan over the first two years.
    • An example of an amortization schedule of a $100,000 loan over the first two years.

  • Amortization of Intangible Assets

    • The costs of intangible assets with identifiable useful lives are amortized over their economic/legal life.
    • Only recognized intangible assets with finite useful lives are amortized.
    • Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter.
    • An intangible asset is amortized if the asset has an identifiable useful life.
    • Company X would recognize an intangible asset valued at $17,000 and amortize that cost over 17 years.

  • Bonds Issued at a Discount

    • When a business sells a bond at a discount, it must record a discount balance in its records and amortize that amount over the bond's term.
    • In addition, that discounted amount must be amortized over the term of the bond.
    • As the company pays interest, the discount on the bond payable is amortized.
    • That means that the amortization rate on the bond payable equal $1,000 ($100,000/10 years).
    • A bond's discount amount must be amortized over the term of the bond.

  • Analyzing Intangible Assets

    • Intangibles with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter.
    • Those with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever one is shorter.
    • Goodwill has to be tested for impairment rather than amortized.

  • Accounting Methodologies: Amortized Cost, Fair Value, and Equity

    • Due to different durations of holding and other factors, companies use several accounting methodologies, including amortized cost, fair value, and equity.
    • Held to maturity securities are reported at amortized cost less impairment.
    • Explain the difference between amortized cost, fair value and the equity method for reporting debt securities

  • Indefinite-Life Impairment

    • Because Indefinite-life tangibles continue to generate cash they can't be amortized; they must be evaluated for impairment yearly.
    • These items are amortized on a straight-line basis over their economic or legal life, whichever is shorter.
    • Indefinite-life tangibles are not amortized because there is no foreseeable limit to the cash flows generated by those intangible assets.
    • Instead of amortization, indefinite-life assets are evaluated for impairment yearly.

  • Copyrights

    • Since a copyright eventually terminates, it is amortized.
    • The business will record an amortization expense to reflect the decrease in the asset's value.
    • Generally, an intangible asset like a copyright is amortized via the straight-line method.
    • This means that the book value of the copyright is divided by the useful life of the copyright to determine the amortization amount.
    • Every year, the amortization amount is subtracted from the value of the copyright and is listed as an expense.

  • Patents

    • Since a patent is only valid for a limited number of years, a business is required to amortize it.
    • The process of amortization requires decreasing the value of the asset annually by an amount equal to the value of the asset divided by the number of years of the patent's useful life.
    • Every year the business records a decrease in the patent's value, it must also record a corresponding amortization expense equal to the decrease.
    • To ensure the books are balanced, the business must also record a $100,000 amortization expense for the next ten years.