when peoples comes to ask about; what is amortization? amortization are expense of intangible assets, which means you can’t touch the intangible asset. it can be copyrights, trademarks, patents, agreements,s, etc…. which are also used in some types of loans in banks such as auto loans and mortgage loans. however, it didn’t have any options like reselling and depreciation.
what is amortization; a clear definition
when comes to talking about amortization, most people find it very hard to understand —- what is amortization and how it works. amortizations are used by most of the publicly traded company. let’s say Apple, Amazon, McDonald’s, Facebook, etc…..
for instance, amazon has a high-quality level of all products. which can market everything; by the symbol of Amazon.
The Amazon symbol is patent, you can’t get anywhere; this patent without Amazon.
to show this patent; in every place. they spend tons and tons of money; on their business. so you can’t touch and use the Amazon patent, because it is an intangible asset. clearly, this patent spending is called amortization.
moreover to make you more clear about; what is amortization and how it works. next, we will take a deep look at. full example .so at the end of the article you will completely understand; what is amortization.
amortization on Apple.
step 1
for example, apple’s revenue has been 250 billion dollars; in the last years. now most people think, 250 billion dollars is an; income made by Apple.
revenue and income are not the same things, revenue is the sale of goods (or) services. the revenue never subtracts (or) deducts the cost of goods, depreciation, amortization, and income tax.
but income subtracts, all things from the revenue. so I think now you can understand, the difference between revenue and income. then, let’s start to calculate the amortization for the Apple industry.
step 2
we already know the revenue of the Apple company. so, let’s take a look at other things
revenue; 250 billion dollars
cost of goods; 50 billion dollars
depreciation; 25 billion dollars
amortization;? let’s say Apple spends in
trade; 450 million dollars
patents; 250 million dollars
on copyrights; and 200 million dollars
if you calculate the total amount on trade, patents, and copyrights of intangible assets, then you will get 900 million dollars of amortization.
step 3
so what is amortization for the apple industry; nine hundred million dollars.
amortization ; 900 million dollars
income tax; 75 million dollars
if you subtract all the things from the revenue of the company, then you will get the real net income.
lastly, in the full example of the apple industry. you will clearly able to connect and understand; what is amortization, and how it’s works. let’s take another. final example, an auto loan. because some people still find it hard to understand.
amortization in auto loan
let’s say, you buy an auto loan of 20,000 dollars; with monthly terms of 5 years. and your monthly payment; is 400 dollars. where your interest will be 10%.
so if you pay the 400 dollars in the current month. then you will be charged depending; on the principal loan amount.
for instance, you paid 300 dollars interest amount and 100 dollars initial amount; from the monthly payment of 400$.
so the balance amount; interest you pay on the next month which is 1900 dollars balance amount, you didn’t pay the interest on 2000 dollars . you only have to pay interest on; the balance principal amount.
this is continuous; for all month. until the loan is finished. however, you can’t touch the property; of the loan interest. so it is called as amortization. finally, I think you may understand; clearly now. what is amortization, and how it can be used in different things. if you have any more doubts about it, feel free to contact us.