Amortisation

Published Friday 24 July 2026

Table of contents

• What is amortisation?
• Asset amortisation vs loan amortisation
• Why asset amortisation matters
• How amortisation works
• How to calculate amortisation
• What can and cannot be amortised
• Four common methods of amortisation
• Amortisation vs depreciation
• Simplify your amortisation with Xero
• FAQs on amortisation
• Related terms
• Learn more about amortisation

Key takeaways

• Amortisation spreads the cost of an intangible asset over its useful life, much like depreciation does for physical assets.
• It can also describe paying down a loan over time, so check which meaning applies to your situation.
• Recording amortisation each year gives you a clearer view of profit and can help lower your taxable profit.
• Common methods include straight-line, declining balance, double declining balance and annuity, and Revenue sets rules on which you can use.

What is amortisation?

Amortisation is how you spread the cost of an intangible asset across its useful life for bookkeeping and tax purposes. It can also refer to paying down a loan over time.

When you buy an intangible asset, you write off the purchase price gradually rather than all at once. This keeps your records in line with the value you get from the asset each year.

Asset amortisation vs loan amortisation

The word amortisation has two common meanings, so it helps to know which one you're dealing with. One relates to assets, the other to loans.

When you buy an asset, you typically write off the cost over time rather than all at once. For physical (or tangible) assets, this process is called depreciation. For intangible assets like patents, trademarks, copyrights or goodwill, it's called amortisation.

Paying down a debt is called loan amortisation. Loan amortisation matters too, but this glossary definition focuses on asset amortisation.

Why asset amortisation matters

Amortisation gives you a clearer sense of your profit and loss from year to year. Writing off the full value of an asset in the year you buy it would make that year's profit look artificially low.

Say you buy a 20-year patent for €100,000. If you wrote off the full value straight away, your profit would drop €100,000 in that year alone. Later years would then look far more profitable, even though you're still getting value from the patent.

Amortising the asset by €5,000 every year for 20 years spreads the cost more evenly. That way you can see your profitability clearly from one year to the next.

How amortisation works

Amortisation starts the moment you record an asset and continues across its useful life. Here's how the process plays out in your accounts.

You record the full value of the asset on your balance sheet at the time of purchase. At the end of every year, you amortise that asset to reflect its loss of value over time.

The amount amortised appears on the balance sheet and is recorded as an expense on the profit and loss statement. Recording amortisation as an expense can help lower your taxes.

This continues throughout the useful life of the asset. If it's a patent, it continues until the patent expires.

How to calculate amortisation

You calculate amortisation by recording the purchase price of an asset, then writing off a set amount each year. The exact formula can change depending on the method you use.

The amount you amortise each year depends on:

• the value of the asset
• the asset's lifespan, which may be guided by Revenue rules
• the amortisation method you use, which is also subject to rules

Some accounting software will automate these calculations, but your inputs must be correct and compliant with the rules set by Revenue (the Revenue Commissioners).

Consult an accountant or bookkeeper to avoid costly mistakes. You can find one in the Xero advisor directory.

What can and cannot be amortised

Amortisation applies to intangible assets that have a definable cost and a limited useful life. Some assets sit outside those bounds and can't be amortised.

Assets you can usually amortise include:

• patents
• copyrights
• trademarks
• goodwill
• software licences

Assets you generally can't amortise include land, which doesn't lose value in the same way, and any asset with no definable cost or an indefinite useful life.

Four common methods of amortisation

Revenue sets rules about which amortisation methods you can use in a given situation. Always consult an expert before you choose a method.

1. Straight-line amortisation: you amortise an equal portion of the asset's value each year of its useful life. For example, a €150,000 asset with a 15-year lifespan would be amortised €10,000 per year.
2. Declining balance method: you amortise more in the early years and less in later years. If an asset costs €10,000, you might amortise at 30% per year, or €3,000 in the first year. The following year, the remaining value is €7,000, so 30% amortisation is €2,100, and this pattern continues until the asset is fully amortised.
3. Double declining balance method: this is a form of declining balance where you set the rate by dividing the number 2 by the asset's useful life. So an asset with a useful life of 5 years is amortised at 40% per year (2 / 5 x 100 = 40%).
4. Annuity method: you amortise the asset according to how much money it earns you in a given year. This needs a model for the lifetime income the asset will generate, which makes it the most complex method.

Amortisation vs depreciation

Amortisation and depreciation work in the same way, but they apply to different types of assets. The key difference comes down to whether the asset is physical or not.

Amortisation is the term you use for intangible assets, which are non-physical things like patents, copyrights and licences. Depreciation is for tangible assets, which are physical things like vehicles, tools and equipment.

Simplify your amortisation with Xero

Tracking intangible assets and recording amortisation each year gets easier when your finances sit in one place. See how Xero can help keep your books accurate and up to date when you get one month free.

FAQs on amortisation

Here are answers to some frequently asked questions about amortisation.

Do you pay tax on amortisation?

Amortisation itself isn't taxed. You record it as an expense, which can reduce your taxable profit, subject to the rules set by Revenue.

What happens when an asset is fully amortised?

Once an asset is fully amortised, its cost has been written off in full and you stop recording amortisation for it. You may still use the asset, but it carries no remaining value in your accounts.

Is amortisation the same as depreciation?

They work the same way, but amortisation applies to intangible assets while depreciation applies to tangible ones. Both spread an asset's cost across its useful life.

Related terms

• Intangible assets
• Assets
• Balance sheet
• Profit and loss statement

Learn more about amortisation

• Depreciation explained
• Accumulated depreciation
• Bookkeeping and accounting guides