Amortization

payback

Depreciation is a method of accounting and valuation by which the cost value of a finite useful life or an intangible asset is gradually reduced by scheduled depreciation of the result. ssspan class="mw-headline" id="Amortisation_of_loans">Amortisation von Darlehen[edit] Amortization in operations relates to the distribution of cash flows over several years. It is used for two distinct processes: amortization of borrowings and amortization of financial instruments. For the latter case, it relates to the allocation of the costs of an intangible asset across a range of dates, or where appropriate: A is the periodical repayment, r is the periodical interest dividing by 100 (for montly instalments also dividing by 12), and n is the sum totalling the instalments (for a 30-year credit with montly instalments n = 30 × 12 = 360).

Amortization is charged negatively (also known as accrued interest) if the interest due is not covered by the amounts paid. Residual interest due is added to the amount of the loans due and is therefore greater than the amount of the initial loans. When the amortization scheme for a credit is "fully amortized", the very last payout (which should be the same as all others if the timing is correct) will pay out all capital and interest costs left on the credit.

When the amortization pattern of a mortgage is not fully amortised, the last due amount may be a large amount of all outstanding repayments and interest. In the absence of the borrower's resources or financial resources to make this immediate settlement or sufficient available debt to fund the amount in a new borrowing, the lender may be in arrears.

Impairment losses in financial reporting relate to the recognition of the costs less the remaining value of intangibles (often IPRs such as patent and trademark rights or copyrights) in a systematic way over their expected useful life to account for their use, expiration, obsolescence or other loss in value as a consequence of use or expiration.

Write-downs are a corresponding approach to property, plant and equipment. The methods used to allocate amortisation to individual financial years are generally the same as for amortisation. Nevertheless, many intangibles such as good will or certain trademarks can be classified as intangibles and are therefore not amortised (although good will is tested annually for impairment).

Depreciation is recognised in an entity's accounts as a decrease in the book value of the intangibles on the face of the Balance Sheets and as an expenditure in the Profit and Loss Account.

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