Amortisation

Amortisation is the equivalent of depreciation for intangible assets. As this is essentially an accounting adjustment that has no effect on future cash flows, investors frequently use profit measures and valuation ratios that exclude amortisation. The balance sheet value of intangible assets is even less related to their economic value than that of tangible assets. Intangible assets created within a company (as opposed to bought in) are not even shown in the accounts at all. The case for excluding amortisation from profit numbers is even stronger than that for excluding depreciation. Under IFRSs, goodwill is no longer amortised. It is revalued very year and the amount of any impairment will be written off as a cost. It is still amortised where UK standards are used. The rationale and methodology for dealing with the value of tangible assets through depreciation or depletion is clearer than that for amortising intangibles.