Accumulated Amortization Definition
Accumulated Amortization refers to the cumulative cost of repayment of loan principal of an intangible asset over time. It is the total sum of costs (amortization expense) involved in the repayment of a loan often secured to purchase an intangible asset.
Also, the amount of costs allocated to an asset from the start of its usefulness to its end is called accumulated amortization. When used for tax purpose, accumulated amortization refers to the total sum that a taxpayer deducts as depreciation.
A Little More on What is Accumulated Amortization
In accounting, accumulated amortization refers to the sum allocated to an asset from when it started being used to the period it was quantified. The allocation of sum or cost is done periodically.
A taxpayer, a corporate tax or income tax firm can also claim accumulated amortization. This is the depreciated deducted from an asset. However, accumulate amortization in both accounting and tax might have the same sum of have different sums. This is based on certain factors such as when depreciations are yet to be deducted from tax expense.
As mandated by the Commercial code, employers are obligated to keep accounts for accounting and tax purposes. Employers are obliged to carry out the following tasks;
- Keeping accounts of all business activities in an orderly manner. This will enhance a proper assessment of inventories and balance sheets.
- This recording of accounting must be carried out by authorized persons in the company.
- The employer must record agreements by the General and Special Boards and the other collegiate bodies of the company. This means that the employer must have a record of minutes of meeting reflecting matters debated, interventions and resolutions.
- The sum of periodic allocation of amortization should also be accounted for because this makes up a cumulative amortization.
A cumulative amortization is also an accumulated amortization, it is arrived at when all the amortization expenses of an asset is calculated. It is calculated after the depreciation deductions and other tax obligations have been met. The cumulative amortization determines the income that will be under personal income tax.
The personal income tax describes the amount that is deductible as amortization expense of asset which determine the net return of economic activities performed by the assets. The corporate tax on the other hand is a fiscally deductible tax expense that determines the bases of tax at different tax periods when the assets are still being managed.
Start of Amortization
In order to quantify accumulated fiscal depreciation and the net fiscal value of an asset, it is essential to know the beginning of the tax-deductible allocations.
The beginning of accumulated tax depreciation as well as deferred tax depreciation is estimated based on the following rules;
- The date when intangible assets are acquired is the start of amortization for these assets.
- Tangible assets begin amortization on their date of entry. In some cases, the date of entry into operation might also be the date it was acquired, while in other cases, it is not.
- Financial fixed assets cannot be amortized, their losses can however be transferred.
In summary, it is essential to note these points. According to the Commercial Code, employers are expected to keep amortization accounts following certain requirements. Cumulative amortization is also quantified barf in the accounting and production allocation.
The beginning of the tax-deductible allocations is crucial for the estimation of accumulated fiscal depreciation. Depreciation can be accounted for annually, represented as cumulative fiscal depreciation, in some cases, it can be quarterly, monthly, and so on.
References for Accumulated Amortization
Academic Research for Accumulated Amortization
• Accounting for Intangible Assets in Scandinavia, the UK, the US, and by the IASC: Challenges and a Solution, Høegh-Krohn, N. E. J., & Knivsflå, K. H. (2000). The International Journal of Accounting, 35(2), 243-265.
• Goodwill amortization and the usefulness of earnings, Jennings, R., LeClere, M., & Thompson, R. B. (2001). Financial Analysts Journal, 57(5), 20-28.
Toward research and development costs harmonization, Khadaroo, M. I., & Shaikh, J. M. (2003). The CPA Journal, 73(9), 50.
Accounting for research and development costs, Gornik-Tomaszewski, S., & Millan, M. A. (2005). Review of Business, 26(2), 42.
Can investors unravel the effects of goodwill accounting?, Duvall, L., Jennings, R., Robinson, J., & Thompson II, R. B. (1992). Accounting Horizons, 6(2), 1.
• The conceptual framework and accounting for leases, Monson, D. W. (2001). Accounting Horizons, 15(3), 275-287.
• Measuring intellectual capital with financial figures: Can we predict firm profitability?, Sydler, R., Haefliger, S., & Pruksa, R. (2014).
Shaking up financial statement presentation, McClain, G., & McLelland, A. J. (2008). Journal of Accountancy, 206(5), 56.
• The valuation implications of employee stock option accounting for profitable computer software firms, Bell, T. B., Landsman, W. R., Miller, B. L., & Yeh, S. (2002). The accounting review, 77(4), 971-996.
• Investors: What’s being done about misleading financial reports?, Hussein, M. E., & Seow, G. S. (2002). Journal of Corporate Accounting & Finance, 13(6), 55-65.
• The contribution of intangible assets and expenditures to shareholder value, Heiens, R. A., Leach, R. T., & McGrath, L. C. (2007). Journal of Strategic Marketing, 15(2-3), 149-159.