Definition of amortisation

The practice of reducing the value of assets to reflect their reduced worth over time. The term means the same as depreciation, though in practice amortisation tends to be used for the write-off of intangible assets, such as goodwill, while either term is used for the write-off of fixed capital.

Amortising an asset effectively transfers its value, or the part that is being written off, from the balance sheet to the profit and loss account, where it reduces taxable income. Depending on the relevant accounting standards, an intangible asset can be written off over time or all at once. Amortisation can also refer to the reduction of debt, either through periodic payments of principal and interest, or through use of a sinking fund.