Definition
Amortization is the accounting practice of spreading the cost of an intangible asset over its useful life as an expense on the income statement. It is the intangible-asset equivalent of depreciation. Common amortised intangibles include software licences, software development costs, goodwill (under some frameworks), patents, customer relationships, and brand names. The mechanics are identical to depreciation: each period, a journal entry debits amortisation expense and credits accumulated amortisation on the balance sheet.
What amortization means in practice
For a bookkeeper, amortisation appears on the income statement of any business that has acquired intangible assets, developed software internally, or completed an acquisition that produced goodwill. In a typical service business with no acquired intangibles, amortisation may be zero; in a tech business or one that has done acquisitions, it can be a material line.
The amortisation period depends on the useful life of the underlying intangible. Software licences are typically 3-5 years. Customer lists acquired in business purchases are typically 3-7 years. Goodwill (under frameworks that amortise it) is typically 5-10 years. Patents follow the legal life of the patent. Trademarks may be indefinite-life and not amortised (impairment-tested only).
A practical example: a UK SaaS business spent 50,000 in 2026-27 developing its core platform. Under FRS 102 Section 18 the costs meet the recognition criteria for an internally-generated intangible. The business capitalises the 50,000 and amortises over 5 years on a straight-line basis. Annual amortisation: 10,000. Each year, a journal entry debits amortisation expense 10,000 and credits accumulated amortisation 10,000. By year 5, the asset’s carrying value is zero and the full 50,000 has been expensed. The annual amortisation is added back to net profit in the corporation tax computation; the tax deduction is via Class 14.1 (in CA) or capital allowances (in UK/SG) or the relevant tax depreciation regime in each country.
How amortization works by country
United Kingdom
FRS 102 Section 18 governs intangibles. Definite-life intangibles (software, patents, customer lists) are amortised over useful life. Goodwill is amortised over up to 10 years under FRS 102 if useful life cannot be estimated reliably. Full IFRS adopters do not amortise goodwill; they apply annual impairment testing instead. For tax, accounting amortisation is generally added back and the Corporate Intangible Fixed Assets regime applies, which allows tax deduction on intangibles acquired after April 2002 at a generally similar rate to the accounting amortisation.
Australia
AASB 138 governs intangibles. Definite-life intangibles are amortised over useful life. AASB 136 governs impairment. Goodwill is not amortised under AASB; annual impairment testing applies. Tax depreciation under Division 40 of the Income Tax Assessment Act 1997 substitutes for accounting amortisation in the tax return: the prescribed effective lives for in-house software (4 years) and other intangibles apply rather than the book amortisation rate.
Canada
ASPE Section 3064 governs intangibles for private companies; IAS 38 governs public companies and IFRS adopters. ASPE allows goodwill amortisation at the entity’s election; IFRS requires annual impairment testing only. For tax, the CRA’s Eligible Capital Expenditure regime was replaced by Class 14.1 in 2017 (5% declining balance for goodwill and most other intangibles) for tax purposes; the half-year rule applies.
New Zealand
NZ IAS 38 mirrors IAS 38. Definite-life intangibles are amortised; indefinite-life intangibles and goodwill are impairment-tested. The IRD’s fixed-life intangible regime covers software with a defined useful life for tax purposes; the schedule of fixed-life intangible asset depreciation rates applies.
Singapore
SFRS(I) 38 mirrors IAS 38. Definite-life intangibles are amortised; indefinite-life intangibles and goodwill are impairment-tested. Capital allowance under section 19A(2) covers IT and software for tax: the two-year write-off is available for assets acquired in qualifying years of assessment.
Related terms
Amortisation is the intangible-asset equivalent of depreciation:
- Depreciation is the tangible-asset equivalent.
- Intangible assets are the underlying balance-sheet items being amortised.
- Goodwill is the intangible most affected by the amortise-vs-impair choice.
- Fixed assets is the broader category that includes both tangible and intangible long-lived assets.
- Posting amortisation requires a manual journal entry each period.
- Capital expenditure is the cash outlay that may create an amortisable intangible.
See also
For the tangible-asset equivalent, see the depreciation entry.
FAQ
See the answered questions above for amortisation vs depreciation, goodwill treatment, and typical SMB intangibles.