Amortization
Amortization
- Recognition of a decline in the value of an assets
- NON-CASH expense in the income statement
- calculated expense
Depreciable asset
- tangible assets (except land, work of art, and historical artifacts)
- intangible assets (patents, licenses, softwares)
Financial assets = not depreciable
Authorization period
Period of use of the asset
- Equipment: between 6 and 10 years
- Transport equipment: between 4 and 5 years
- Software & Hardware: 3 years
Amortization Schedule
- Original Value (cost of the asset excluding VAT)
- Amortization annuity (amount of the amortization expense each year)
- Normal duration of use (number of years of use of the asset fixed by the fiscal authorities)
- Amortization rate: 100% / Normal duration of use
- Net Book Value: Original Value - Cumulative amortization annuities = annual depreciation
Methods of amortization
Linear method
Degressive method
- Decreasing annual amortization
- Higher tax savings
Example
Purchase of a machine $25000, duration of use 5 years
- Case 1: date = 1 January N
- Case 2: date = 12 August N
Linear method
Case 1
Annuity rate =
Amortization annuity =
Net Book Value =
or
Net Book Value =
Amortization rate
Amortization annuity
Year | Depreciable base | Annuity | Cumulated annuities | Net Book Value |
---|---|---|---|---|
N | 25000 | 5000 | 5000 | 20000 |
N+1 | 25000 | 5000 | 10000 | 15000 |
N+2 | 25000 | 5000 | 15000 | 10000 |
N+3 | 25000 | 5000 | 20000 | 5000 |
N+4 | 25000 | 5000 | 25000 | 0 |
Case 2
Annuity rate =
Amortization annuity =
Net Book Value =
or
Net Book Value =
Annuity for the first year =
Amortization rate
Amortization annuity
Annuity for the first year
Year | Depreciable base | Annuity | Cumulated annuities | Net Book Value |
---|---|---|---|---|
N | 25000 | 1916,66 | 1916,66 | 23083,34 |
N+1 | 25000 | 5000 | 6916,66 | 18083,34 |
N+2 | 25000 | 5000 | 11916,66 | 13083,34 |
N+3 | 25000 | 5000 | 16916,66 | 8083,34 |
N+4 | 25000 | 5000 | 21916,66 | 3083,34 |
N+5 Complementary annuity | 25000 | 3083,34 | 25000 | 0 |
Degressive method
Case 1
Duration | Original Coefficient |
---|---|
Between 3 and 4 years | 1.25 |
Between 5 and 6 years | 1.75 |
More than 6 years | 2.25 |
Linear Annuity rate =
Compared Linear Annuity rate =
Degressive Annuity rate =
Amortization annuity =
Net Book Value =
or
Net Book Value =
Linear Amortization rate
Degressive Annuity rate
Year | Depreciable base | Annuity | Cumulated annuities | Net Book Value | |
---|---|---|---|---|---|
20%35% | N | 25000 | 8759 | 8750 | 16250 |
25%35% | N | 16250 | 5687.5 | 14437.5 | 10562.5 |
33%35% | N | 10562.5 | 3696.87 | 18134.37 | 6865.62 |
50%35% | N | 6865.62 | 3432.81 | 21567.18 | 3432.81 |
100%35% | N | 3432.81 | 3432.81 | 25000 | 0 |
Case 2
Duration | Original Coefficient |
---|---|
Between 3 and 4 years | 1.25 |
Between 5 and 6 years | 1.75 |
More than 6 years | 2.25 |
Linear Annuity rate =
Compared Linear Annuity rate =
Degressive Annuity rate =
Amortization annuity =
Net Book Value =
or
Net Book Value =
Annuity for the first year =
Linear Amortization rate
Degressive Annuity rate
Annuity for the first year
Year | Depreciable base | Annuity | Cumulated annuities | Net Book Value | |
---|---|---|---|---|---|
20%35% | N | 25000 | 3354.16 | 3354.16 | 21645.84 |
25%35% | N | 21645.84 | 7576.04 | 10930,20 | 14069.79 |
33%35% | N | 14069.79 | 4924.42 | 15854.63 | 9145.36 |
50%35% | N | 9145.36 | 4572.68 | 20427.31 | 4572.68 |
100%35% | N | 4572.68 | 4572.68 | 25000 | 0 |
Accounting Documents
Recording Book
Income Statement
Balance Sheet
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