Amortisation

A non-cash expense taken against the Profit and Loss for the reduction in the Balance Sheet Valuation of intangible assets.

Amortisation is an expense, used in the preparation of a company’s annual financial statements and as it is a non-cash item as there is no cash payment. As amortisation is recognised as an expense, it reduces the taxable income of a company, while not impacting the company’s cash position. An adjustment is made in preparing the Cash Flow Statement. The purpose is to recognise the decreasing value of an intangible asset and has the effect of reducing the value of the intangible asset on the balance sheet. An amortisation schedule will conform to GAAP or IFRS Accounting Standards. An intangible asset is an asset that cannot be touched. For example Goodwill, Intellectual Property, Patents, Copyrights and Trademarks. When applied to an asset, amortisation is similar to the depreciation of a fixed asset.