Amortization of intangible assets refers to the process of allocating intangible assets owned by an enterprise to various accounting periods in a reasonable manner within its useful life. Intangible assets refer to those assets that have no physical form but have economic value, such as patents, trademarks, copyrights, software licenses, goodwill, etc.
After acquiring intangible assets, companies usually capitalize their costs and gradually amortize the costs of these assets in subsequent accounting periods. The purpose of amortization is to reasonably allocate the cost of intangible assets to the income period related to it to reflect the contribution and consumption of intangible assets in the operation process of the enterprise.
The amortization of intangible assets is usually carried out based on their estimated useful lives, and the straight-line amortization method, accelerated amortization method or other reasonable amortization methods can be used. Straight-line amortization is the most common method, which amortizes the cost of an intangible asset evenly over each accounting period over its estimated useful life. The accelerated amortization rule amortizes more in the early years and gradually decreases in the later years.
The result of amortization is that the value of intangible assets will gradually decrease in the company's financial statements, while the amortization expenses reflected in the income statement (income statement) will also increase. In this way, companies can more accurately reflect the contribution of intangible assets to business operations and comply with accounting standards' requirements for asset cost allocation.