What is Amortization Expense

It is the cost of an Intangible Non Current Asset charged to expense during the Current Accounting Period. It is recorded as an Expense and closed by transferring to Income Statement at the end of Accounting Period. Amortization Expense Account is prepared for recording Adjusting Journal Entry during the Accounting Period.

Example: Suppose A company acquired Patent at the cost of Rs. 50000. Currently, the company is adopting Straight Line Method for Amortization. The estimated useful life of Patent is 5 years then Amortization on Patent for the year is (50000/5) Rs. 10000. The Accounting Journal Entry is recorded in the Journal of business as follows:

Amortization Expense Journal Entry

                   Amortization Expense a/c - Patent    10000

                                                        Accumulated Amortization a/c - Patent   10000

(Amortization Expense on Patent for the year is Recorded)

Here Rate of Amortization on Patent = 1/5 X 100 = 20%

Amortization Expense Amount can be found as shown below:

                              Cost - Residual Value / Useful Life = 50000 / 5 = 1000

                                                                  Or

                                 Amortizable Amount X Amortization Rate

                                                      50000 - 0 X 20%

                                                    50000 X 20% = 10000

So, Amortization Expense Amount is the cost of an Intangible Assets charged to expense during the Current Accounting Period.