Amortization is the portion of an intangible asset’s cost recorded as an expense during the current accounting period. In simple terms, since an intangible asset has a useful life longer than one accounting period, amortization represents the part of its value, if any, used up during the current period.
Amortization can be calculated many ways, but straight-line amortization is almost always used. That is also the simplest, dividing the intangible asset’s unamortized cost by the number of remaining accounting periods it is expected to last.
Because so many variables for amortization exist, Manager does not calculate amortization amounts. You must determine allowable amortization for the current accounting period according to an intangible asset’s remaining life, original cost, amortization method, possible impairment of the asset, and local regulations. Once you have done that, Manager will keep track of how much amortization has been accumulated for the intangible asset.
To enter amortization for a specific intangible asset, go to the Intangible Assets tab. Click on the blue figure in the
Accumulated amortization column for that asset:
This will transfer you to the amortization register for the selected intangible asset. Click the New Amortization Entry button to enter the amortization expense amount.
ACME Industries purchased a patent for 10,500. It has a remaining lifetime of 15 years and is being amortized monthly. Monthly amortization is calculated:
10,500 cost / 120 months = 87.50 / month
This amount is entered on the amortization entry screen:
The Intangible Assets register now shows the amortization amount and reduced book value:
Subsequent amortization entries will add to the total of accumulated amortization. A complete record of amortization for the asset can be seen by clicking on the blue balance.
ACME enters amortization for the following month. The drill-down shows all entries:
The Summary tab combines accumulated amortization for all intangible assets. It displays Intangible assets, accumulated amortization as a contra asset account (meaning the balance is normally negative). This control account is activated automatically when you enable the Intangible Assets tab.
ACME’s balance sheet shows its complete position with respect to intangible assets: