Amortization

The_Hurricane

Hi All,

What does amortization refer to in a business context? From googling this word my understanding it relates to any loans etc that a company have, e.g. if a company has a loan of £5000 then then amortization value is £5000.

Thanks in advance.

The_Hurricane

Bump.......

paddyrg

In what exact context. People are wary to tell you one thing in case it means something different in context. I have, for instance, had it used in terms of how a cost was recognised across multiple unrelated events.

antrobus

The practice of reducing the value of assets to reflect their reduced worth over time. The term means the same as depreciation, though in practice amortisation tends to be used for the write-off of intangible assets, such as goodwill, while either term is used for the write-off of fixed capital.

http://lexicon.ft.com/Term?term=amortisation

The_Hurricane

Apologies for the lack on information, Amortization in the context I mentioned was that of EBITDA (Earnings before interest, taxes, depreciation and amortization).

I assumed amortization may have referred to a properties depreciation but with depreciation included in the above it must be something different.

Acc72

The_Hurricane wrote: »

Apologies for the lack on information, Amortization in the context I mentioned was that of EBITDA (Earnings before interest, taxes, depreciation and amortization).

I assumed amortization may have referred to a properties depreciation but with depreciation included in the above it must be something different.

College question ?

As Antrobus said above - it is effectively the same principle as Depreciation in terms of spreading a cost over a number of accounting periods.

Depreciation = Tangible Asset (such as plant & machinery etc.)
Amortisation = Instangible asset (such as goodwill)

The_Hurricane

Acc72 wrote: »

College question ?

As Antrobus said above - it is effectively the same principle as Depreciation in terms of spreading a cost over a number of accounting periods.

Depreciation = Tangible Asset (such as plant & machinery etc.)
Amortisation = Instangible asset (such as goodwill)

It cropped up at work (I'm in insurance) and the abbreviation EBITDA was within a document sent to me, I understood all other letters except A.

I think I understand it a lot better now, could an intangible assett be money owed etc?

Acc72

The_Hurricane wrote: »

It cropped up at work (I'm in insurance) and the abbreviation EBITDA was within a document sent to me, I understood all other letters except A.

I think I understand it a lot better now, could an intangible assett be money owed etc?

No worries.

Money that you are owed from customers (Trade Debtors) are classed as Current Assets.

Money that you owe to your suppliers (Trade Creditors) are classed as Current Liabilities.

Intangible assets are things like Goodwill, Patents and Brands (i.e. something that has a value but does not "physically" exist / you cannot "touch" it - sorry, I am probably not explaining this very well).