Project Management

Amortization

last edited by: Peter Wootton on Mar 12, 2020 12:44 PM login/register to edit this page


Intangible assets, like many produced in the IT world (patents, inventions, a business process or system that offers competitive advantage), contribute to the future revenues. Therefore they can be expensed over time as those revenues occur.

Note: Understanding amortization can be important when looking at ROI for your project. If the costs can be spread out over time, returns may come faster than you would expect.

Calculating Amortization The formula for calculating the amortization on an intangible asset is similar to the one used for calculating straight-line depreciation.

Divide the initial cost of the intangible asset by the estimated useful life of the intangible asset.

uFormula/u

initial cost ÷ useful life = amortization per year

uExample/u

If it costs $100,000 to acquire a patent and it has an estimated useful life of 10 years, the amortized amount per year equals $10,000. The amount of amortization accumulated since the asset was acquired appears on the balance sheet as a deduction under the amortized asset.

$100,000 ÷ 10 (yrs) = $10,000 per year


last edited by: Peter Wootton on Mar 12, 2020 12:44 PM login/register to edit this page


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