Amortization. The process of writing off intangible assets is termed as amortization. Some intangible assets like patents, copyrights, leaseholds have a limited useful life. Hence, their cost must be written off over such period.

The American Institute of Certified Public Accountants (AICPA) has put the difference between depreciation, depletion, and amortization in the following words.

“Depreciation can be distinguished from other terms with specialised meanings used by accountants to describe assets cost allocation procedures. Depreciation is concerned with charging the cost of man made fixed assets to operations (and not with determination of asset value for the balance sheet). Depletion refers to cost allocations for natural resources such as oil and mineral deposits. Amortization relates to cost allocation for intangible assets such as patent and leaseholds. Thc use of the term depreciation should alsobe avoided in connection with the valuation prOcedures for securities and investments”.

 

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