Definition of Amortization
When a charge is placed over the value of an asset that is not tangible. Unlike depreciation that placed the charge over the value of an asset and has tangible properties including, machinery, plant vehicle etc.
Examples of Intangible Assets
- An agreement for a franchise
- Copyrights and trademarks
To calculate amortization straight-line method is used for an intangible asset, and these assets don’t have a salvage value that normally is the case with depreciation. However, it is important to mention that amortization is usually used to calculate the payments of loan that includes both the interest and principal amounts in the payment.