Amortisation

Amortisation is a financial concept involving the gradual repayment of a loan or the systematic allocation of the cost of an intangible asset over time. It ensures that payments or expenses are spread evenly over a defined period rather than incurred as a lump sum. 1. In Loans Loan repayment is divided into regular, consistent installments. Each installment includes both principal repayment and interest. Common examples: Mortgages Personal loans Business loans Benefits in Loans: Predictable payment schedule Reduces the risk of default Helps in financial planning and budgeting 2. In Accounting (Intangible Assets) Amortisation is used to allocate the cost of intangible assets (like patents, trademarks, copyrights, and software) over their useful life. It is similar to depreciation for tangible assets. Benefits in Accounting: Reflects true asset value on the balance sheet Provides tax deductions over time Matches expense recognition with revenue generation Key Points Spreads costs or repayments over multiple periods Enhances financial clarity and planning Distinguishes between loan amortisation (cash flow management) and asset amortisation (accounting for intangible assets)

Examples of Amortised Loans:

• Home loans (mortgages)

• Personal loans

• Auto loans

• Business loans