What is Amortization?
Assets & Depreciation
Explained Simply
While depreciation applies to physical assets, amortization applies to intangible assets. Common intangible assets include patents, trademarks, copyrights, franchise agreements, and software licences. The amortization period depends on the asset's legal or useful life. In South Africa, certain intangible assets qualify for tax deductions under the Income Tax Act. Goodwill acquired in a business combination is not amortized under IFRS but is tested annually for impairment.
Related Terms
- DepreciationDepreciation is the systematic allocation of a fixed asset's cost over its useful life, reflecting the asset's wear and tear, obsolescence, or decline in value.
- Fixed AssetA fixed asset (also called a non-current or tangible asset) is a long-term physical asset owned by a business that is used in operations and not intended for sale, such as buildings, vehicles, machinery, or equipment.