Amortisation

Published Friday 24 July 2026

Table of contents

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

Key takeaways

• Amortisation spreads the cost of an intangible asset, such as a patent or licence, across its useful life.
• It gives you a clearer view of profit each year by matching an asset's cost to the value it delivers.
• Common methods include straight-line, declining balance, double declining balance and the annuity method.
• In Malaysia, accounting amortisation isn't tax deductible, so relief for qualifying assets comes through capital allowances instead.

What is amortisation?

Amortisation is the depreciation of intangible assets for bookkeeping and tax purposes. It can also refer to the reduction of a loan over time.

Amortisation is how a business records the purchase of an intangible asset in its accounting records and on its tax returns. The purchase price is written off gradually over the asset's useful life. Amortisation can also refer to paying down a debt over time.

Automate amortisation with Xero.

Asset amortisation vs loan amortisation

When a business buys an asset, it typically writes 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, the process is called amortisation.

Paying down a debt is referred to as loan amortisation. While it's important to understand loan amortisation, this glossary definition deals with asset amortisation.

Why asset amortisation matters

Amortisation gives businesses a better sense of their profit and loss from year to year. Writing off the full value of an asset at the time of purchase would make profits look artificially low for that year.

Say a business buys a 20-year patent for RM100,000. If it wrote off the full value of the patent straight away, its profit would dip RM100,000 in that year alone. In later years, profits would look a lot higher even though the business is still getting value from the asset. Amortising the asset by RM5,000 every year for 20 years spreads the cost so the business can see its profitability from year to year.

What can and cannot be amortised

You can amortise intangible assets that have a finite useful life and a known cost. Items without a defined life or cost, such as internally generated goodwill, generally can't be amortised.

• Patents
• Copyrights
• Trademarks
• Licences
• Software with a finite licence term

How amortisation works

The business records the full value of the asset on its balance sheet at the time of purchase. At the end of every year, it amortises that asset to reflect its loss of value over time.

The amount amortised is reflected on the balance sheet and recorded as an expense on the profit and loss statement. In Malaysia, accounting amortisation itself isn't deductible for tax. Tax relief for qualifying assets is given through capital allowances instead, and many intangible assets don't qualify, so check the current rules with an accountant or the Inland Revenue Board of Malaysia (LHDN).

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

How to calculate amortisation

Amortising assets can be complicated, and the formula may change depending on the method being used. The process starts by recording the purchase price of the asset, then amortising a set amount each year. The amount amortised depends on:

• the value of the asset
• the asset's lifespan, which may be set by LHDN
• the amortisation method being used, which is also subject to rules

Some accounting software will automate these calculations, but the input must be correct and compliant with rules set by LHDN.

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

Four common methods of amortisation

LHDN sets rules about which amortisation methods you can use in given situations. Always consult an expert before choosing a method.

1. Straight-line amortisation: An equal portion of the asset's value is amortised each year of its useful life. For example, a RM150,000 asset with a 15-year lifespan would be amortised RM10,000 per year.
2. Declining balance method: The asset is amortised more during the early years of its life and by lower amounts in later years. For example, if the asset costs RM10,000 the business might amortise at a rate of 30% per year. That would equate to RM3,000 the first year. The following year, the remaining value would be RM7,000, so 30% amortisation would be RM2,100. This pattern continues until the asset is fully amortised.
3. Double declining balance method: This is a form of declining balance where the rate of amortisation is set in a certain way. The rate is calculated by dividing the number 2 by the useful life of the asset. So an asset with a useful life of 5 years would be amortised at 40% (2 / 5 x 100 = 40%) per year.
4. Annuity method: The asset is amortised according to how much money it earns the business in a given year. This requires a model for figuring out the lifetime income the asset will generate. As a result, it's the most complex of all the methods.

Amortisation vs depreciation

Amortisation and depreciation both spread an asset's cost over its useful life, but amortisation applies to intangible assets and depreciation applies to tangible ones.

Amortisation and depreciation work the same way. Amortisation is the word used 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.

Manage amortisation with Xero

Xero's online accounting software can help you record intangible assets and track amortisation in one place. To keep your finances organised, explore the plans and get one month free.

FAQs on amortisation

Here are answers to some frequently asked questions about amortisation.

Is amortisation tax deductible in Malaysia?

Accounting amortisation isn't tax deductible in Malaysia. Relief for qualifying assets comes through capital allowances instead, and many intangibles don't qualify, so check with an accountant or LHDN.

Can goodwill be amortised?

Internally generated goodwill generally can't be amortised because it has no defined useful life or purchase cost. Purchased goodwill is usually tested for impairment rather than amortised.

Does amortisation affect cash flow?

Amortisation is a non-cash expense, so it reduces your reported profit without moving money out of the business. The cash leaves when you buy the asset, not as it's amortised.

How often is amortisation recorded?

Amortisation is recorded in each accounting period, often monthly or yearly, until the asset is fully written off. The pattern depends on the method and the asset's useful life.

Related terms

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

Learn more about amortisation

• Depreciation explained
• Accumulated depreciation guide
• Financial statements guide