Amortised definitions
| Word backwards | desitroma |
|---|---|
| Part of speech | The word "amortised" is a verb. |
| Syllabic division | a-mor-tised |
| Plural | The plural of amortised is amortised. |
| Total letters | 9 |
| Vogais (4) | a,o,i,e |
| Consonants (5) | m,r,t,s,d |
Understanding Amortisation
Amortisation is a financial term that refers to the process of spreading out expenses over a set period of time. It is commonly used in the context of loans and investments, where the principal amount is paid off gradually through regular payments. This helps to reduce the burden of paying off a large sum of money all at once.
How Amortisation Works
When you make a payment towards an amortised loan, a portion of it goes towards paying off the interest that has accrued on the loan, while the remainder goes towards reducing the principal balance. Over time, as more payments are made, the amount allocated towards the principal increases, while the interest portion decreases. This process continues until the loan is fully paid off.
Benefits of Amortisation
One of the key benefits of amortisation is that it allows individuals and businesses to budget more effectively. By spreading out expenses over a period of time, it becomes easier to manage cash flow and ensure that payments are made on time. Additionally, amortisation can also help to reduce the total amount of interest paid over the life of a loan, as the principal balance decreases with each payment.
Amortisation in Investments
Amortisation is not just limited to loans - it is also used in the context of investments. For example, when an intangible asset like a patent or trademark is acquired, the cost of the asset is typically amortised over its useful life. This allows businesses to allocate the expense of the asset over time, reflecting its decreasing value as it is used.
Conclusion
In conclusion, amortisation is a key financial concept that plays a crucial role in managing expenses and investments. By spreading out costs over time, individuals and businesses can better navigate their financial obligations and make informed decisions about their money. Whether it's paying off a loan or accounting for an intangible asset, understanding how amortisation works is essential for long-term financial success.
Amortised Examples
- The cost of the new equipment was amortised over five years.
- The loan was structured with an amortised repayment schedule.
- The company decided to amortise the development costs over the expected product lifespan.
- Investors calculated the amortised value of the bond over time.
- The mortgage payments were amortised to ensure the loan was paid off in full.
- The software company amortised the cost of developing a new app over multiple accounting periods.
- The accounting team calculated the amortised value of the intangible asset.
- The company decided to amortise the goodwill over a 10-year period.
- The amortised cost of the lease was deducted as an expense over the term of the agreement.
- The accountant explained the concept of amortisation to the new finance intern.