Amortize intangible assets

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. 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.

Straight-line amortization is the simplest method, dividing the intangible asset’s unamortized cost by the number of remaining accounting periods it is expected to last. Other methods can yield greater amortization in early accounting periods to recognize rapid obsolesence or take into account the residual value of the intangible asset after it is fully amortized. Tax regulations might also allow accelerated amortization to encourage business investment or simplify filing. And laws may specify which amortization methods must be used or cannot be used.

Enable the Amortization Entries tab

Before amortization can be entered, the Amortization Entries tab must be enabled. Click Customize below the left navigation pane, check the box, and click Update:

If you entered amortization in a version of Manager before the Amortization Entries tab was added, the box will already be checked. Just click Update.

Enter amortization

To enter amortization for a specific intangible asset, go to the Amortization Entries tab. Click New Amortization Entry:

Complete the entry:

  • Date will be prefilled with the current date, but can be edited.
  • Reference is optional and may be used for cheque numbers, bank confirmation numbers, or other internal sequences. If the box within the field is checked, Manager will number the transaction automatically. The program will search for the highest number among all existing amortization entires and add 1.
  • Enter an optional Description .
  • Choose the Intangible Asset from among those already defined.
  • Select a Division if desired and if any are defined.
  • Enter the amortization Amount .

Click Create.

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 Amortization balance for an asset in the Intangible Assets tab.

ACME enters amortization for the following month. The drill-down shows all entries:

By default, 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:

However, amortization can be accumulated in custom control accounts instead. These custom control accounts can be assigned on an asset-by-asset basis. See another Guide for a complete, illustrated example. (That Guide illustrates using custom control accounts for a fixed asset, but the principles and processes are identical.)

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