Term: AMORTISATION

Accounting method in which an asset’s cost is spread out over a period of time. For example, a vehicle costing R100 000 might be amortised or “depreciated” over five years at a rate of R20 000 per annum. More commonly, the term is used to describe the steady reduction in the value of intangible assets such as goodwill (premium arising on acquisition). When a company buys another company for more than its net asset value, an intangible asset is created known as goodwill. It is customary accounting practice for this “asset” to be amortised over a period of time.

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