Amortization

Amortization:

(1) Accounting procedure which gradually reduces the book value of an intangible asset through periodic charges to income; similar to depreciation for fixed assets. See also: Capitalize.

(2) Method of reducing a taxpayer’s cost basis in a bond purchased at a premium. (vs. Accretion.)

(3) Reduction of debt through periodic payments if principal-as in “self amortizing” mortgages.

Book Value:

The theoretical liquidation value of a company determined by adding all current and fixed assets and then deducting all debts, other liabilities, and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share. Book value of the assets of a company or a security often has little correlation tot the market value.

Intangible Asset:

Those assets of a corporation that are not physical. These include goodwill, trademarks and patents.

Depreciation:

Normally, charges against earnings to write off the cost of an asset over its estimated useful life. It is a bookkeeping entry and does not represent any cash outlay nor are any funds earmarked for the purpose. See also: Accelerated Cost Recovery System (ACRS); Straight-Line.

Capitalize:

An accounting method that records an outlay as an Asset (vs. Expense) that is subject to depreciation or amortization. See also: Depreciation; Amortization.

Cost Basis:

The cost used to determine a capital gain or loss on an investment.

Accretion:

A method of adjusting a taxpayer’s cost basis of a bond bought at an original issue discount. The annual accretion is treated as interest for tax purposes.