Why amortisation period matters to a first-time founder
The amortisation period sets how quickly an intangible asset becomes an expense or how loan repayments are scheduled. A shorter period usually means a larger expense or larger repayments in each period. The accounting life of an asset and a loan’s repayment schedule are different things.
Examples of amortisation period
A company spreads a C$60,000 licence evenly over three years, recording a C$20,000 expense each year. Its loan may calculate payments over ten years but fall due after five, leaving a large final payment. The asset period, repayment schedule and final loan date are separate decisions.
Common misunderstanding
For a loan, the repayment schedule can run longer than the contract. The final due date may therefore arrive before scheduled payments would clear the amount borrowed. For an intangible asset, the period should reflect its expected useful life and the accounting rules, not a desired profit figure.
When to use it
State whether you mean an asset or a loan. For assets, review legal rights, expected use, the risk of becoming outdated and the accounting rules. For borrowing, compare the repayment period, payment frequency, final due date and any large final payment. Ask advisers to review important assumptions and terms.
US spelling: amortization period.