Define: Amortisation

UK Accounting Glossary

Definition: Amortisation


Quick Summary of Amortisation


Process similar to depreciation, usually applied to intangible fixed assets.



What is the dictionary definition of Amortisation?

Dictionary Definition


Spreading the cost of an intangible asset, such as a lease, over the years in which it is used. It is usual to divide the cost of the lease by the number of years that the lease is held for, and then use that figure as the annual charge.

This is similar to depreciation except that depreciation deals with tangible or fixed assets such as motor vehicles or plant and equipment.

  1. The process of treating as an expenses the annual amount deemed to waste away from a fixed asset.
  2. The repayment of debt by a borrower in a series of instalments over a period.
  3. The spreading of the front-end fee charged on taking out a loan over the life of a loan for accounting purposes.
  4. Another word for Depreciation (USA).

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Full Definition of Amortisation


The building up over a period of a fund to replace a productive asset at the end of its useful life, or to repay a loan.

In the case of a loan, the amount required for amortisation depends on the interest rate that can be earned on the accumulated fund.

In the case of replacement of physical assets, the amount needed depends not only on the interest rate but also on the expected lifetime of the asset and on the rate of inflation, which affects the expected cost of replacement.

The practice of reducing the value of assets to reflect their reduced worth over time. The term means the same as depreciation, though in practice amortisation tends to be used for the write-off of intangible assets, such as goodwill, while either term is used for the write-off of fixed capital.

Amortising an asset effectively transfers its value or the part that is being written off, from the balance sheet to the profit and loss account, where it reduces taxable income. Depending on the relevant accounting standards, an intangible asset can be written off over time or all at once. Amortisation can also refer to the reduction of debt, either through periodic payments of principal and interest or through use of a sinking fund.


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Examples of Amortisation in a sentence


Mortgage lenders who set up their clients with amortization of payments are now losing money as the homeowner’s default on their loans.
Takeovers may be more on the rise now that goodwill amortization has been done away with and smaller companies are required to pay for their large purchases upfront.


Synonyms For Amortisation


depreciation, pay back, amortization, snubbing, buffer


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Definition Sources


Definitions for Amortisation are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • BusinessDictionary.com
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 23rd December 2018.