Amortization Meaning

The write-down in value in set amounts over a period of years of intangible assets that have a limited life, including goodwill (see Goodwill).

Goodwill usually occurs when one company buys another and represents the intangible parts of the company acquired that have value besides the tangible assets, for example a company’s strong name in the marketplace.

The concept of amortization is similar to depreciation (see Depreciation) which is the gradual write-down in value of tangible assets, like plant or equipment, over a period of years.

The purpose of both amortization and depreciation is to reflect accurately the resale value of the asset. Both are tax deductible.

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