Actual results could differ materially from those estimates. In company record-keeping, before amortization can occur, the purchase of the asset must be recorded. of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Amortization expense is an income statement account affecting profit and loss. For this reason, overstating or understating the asset's salvage value and useful life can make quite an impact on the company's bottom line. The annual amortization expenses will be 12,000, or 1,000 a month if you are recording amortization expenses monthly.
The result is net income, which is used to determine earnings per share. The amount is also reported on each accounting period's income statement as an expense against operating profit along with taxes, interest, and depreciation. This is done through a debit entry to the amortization expense account and a credit to the contra account that is reported on the balance sheet called accumulated amortization. The annual amount is deducted each year on the balance sheet to reflect the asset's current value. To determine amortization, the company determines a present value for the intangible asset and defines its useful life expectancy, just as with calculating depreciation. The concept behind amortization is to account for the expense of using up an intangible asset's value to produce revenue. Impairment of Intangible Assets Amortization Interest to be paid (10 100,000) Interest Expense to be recorded (10.53 Preceding bond carrying value) Discount Amortization. We can prepare the bond discount amortization schedule as follows: Interest Periods. With so many variables and inferences involved in determining amortization and the life expectancy of an intangible asset, impairment cost can be used to manipulate the balance sheet. The effective-interest rate is 10.53 and interest is payable on Jan.The concept of amortization is to account for the expense of using up an intangible asset's value to produce revenue.Tangible assets are depreciated over the. Depreciation Expense and Accumulated Depreciation Depreciation expense is an income statement item. Capital expenses are either amortized or depreciated depending upon the type of asset acquired through the expense. Amortization and impairment both relate to the value of a company's intangible assets, which are reported on the balance sheet. Specifically, amortization occurs when the depreciation of an intangible asset is split up over time, and depreciation occurs when a fixed asset loses value over time.
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