amortization- meaning

Amotization is different from depreciation . writing off is not based on life expectancy of the asset but it can also be for the purpose of renewal or replacement. it has two definitions :

1. The paying off of debt in regular installments over a period of time.

2. The deduction of capital expenses over a specific period of time (usually over the asset’s life). More specifically, this method measures the consumption of the value of intangible assets, such as a patent or a copyright.

Amoritization is usually accompanied by putting aside money in a SINKINGFUND, so that the considerably increased cost of replacement or modernization can be met, when it is needed.

Suppose XYZ Biotech spent $30 million dollars on a piece of medical equipment and that the patent on the equipment lasts 15 years, this would mean that $2 million would be recorded each year as an amortization expense.

While amortization and depreciation are often used interchangeably, technically this is an incorrect practice as amortization refers to intangible assets and depreciation refers to tangible assets.

there are many ways to calculate amortization such as financial calculators, spreadsheet software packages such as Microsoft Excel, or amortization charts and tables.

# Amortization (business), the allocation of a lump sum amount to different time periods, particularly for loans and other forms of finance, including related interest or other finance charges.

* Amortization schedule, a table detailing each periodic payment on a loan (typically a mortgage), as generated by an amortization calculator.
* Negative amortization, an amortization schedule where the loan amount actually increases through not paying the full interest

# Amortized analysis, analyzing the execution cost of algorithms over a sequence of operations.