Amortising

Amortising is a term used in finance and accounting to describe the process of gradually paying off a debt or spreading the cost of an intangible asset over a period of time. When referring to debt, amortisation involves making regular payments that cover both the principal amount borrowed and the interest accrued. Each payment gradually reduces the outstanding balance until the debt is fully repaid. The structure of these payments often results in smaller principal repayments in the early stages and larger principal repayments in the later stages, with interest costs being higher initially and decreasing over time.

In the context of intangible assets, amortisation refers to the systematic allocation of the cost of an intangible asset, such as a patent, copyright, or franchise, over its useful life. This process is similar to depreciation for tangible assets. Instead of reflecting the physical wear and tear, amortisation accounts for the gradual consumption or expiration of the asset's economic benefit. For accounting purposes, the amortised cost is recorded as an expense on the income statement over the asset's expected period of use, reducing the book value of the asset on the balance sheet. The method of amortisation can vary depending on the nature of the intangible asset and accounting standards.