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
• Simplify amortisation with Xero
• FAQs on amortisation
• Related terms
• Learn more about amortisation

Key takeaways

• Amortisation spreads the cost of an intangible asset across its useful life, so your profit reflects the value you get each year
• It can also describe paying down a loan over time through scheduled repayments
• In Singapore, accounting amortisation is added back for tax, and relief comes through Section 19B writing-down allowances over 5, 10 or 15 years
• Amortisation applies to intangible assets, while depreciation applies to tangible ones

What is amortisation?

Amortisation is how you spread the cost of an intangible asset across its useful life in your accounts and tax records. It can also describe paying down a loan over time.

Rather than writing off the whole purchase price at once, you record a portion as an expense each year until the asset’s value reaches zero.

Asset amortisation vs loan amortisation

The word amortisation covers two related ideas, so it helps to separate them early.

When you buy an asset, you usually write off its cost over time rather than all at once. For physical (tangible) assets like vehicles or equipment, that process is depreciation. For intangible assets like patents, trademarks, copyrights or goodwill, it’s amortisation.

Paying down a debt is loan amortisation, where each repayment chips away at the balance on a set schedule. This definition focuses on asset amortisation.

Why asset amortisation matters

Amortisation gives you a clearer view of profit from year to year. Writing off an asset’s full value at purchase would make that year’s profit look artificially low.

Say you buy a 20-year patent for $100,000. Writing off the full value straight away would cut that year’s profit by $100,000. Later years would then look far more profitable, even though you’re still getting value from the patent. Amortising $5000 each year for 20 years spreads the cost so your profitability is easier to read.

What can and cannot be amortised

Not every intangible asset can be amortised. The test is whether the asset has a finite useful life.

You can amortise intangible assets with a finite life, because you can estimate how long they’ll bring value. Common examples include:

• patents and registered designs
• copyrights and licences
• software and development costs
• customer contracts with a set term

Some intangibles have an indefinite useful life, such as goodwill or certain trademarks you expect to renew. You don’t amortise these. Instead, you test them for impairment and write down their value if it falls.

How amortisation works

Amortisation runs from the moment you record the asset until it’s fully written off. Here’s how the entries flow through your accounts.

You record the full value of the asset on your balance sheet at the time of purchase. At the end of each year, you amortise it to reflect the value used up over that period.

The amount you amortise reduces the asset’s value on the balance sheet and is recorded as an expense on the profit and loss statement. In Singapore, this accounting amortisation is generally added back for tax and isn’t deductible on its own. Instead, you may be able to claim writing-down allowances on qualifying intellectual property rights under Section 19B of the Income Tax Act 1947. These are usually spread over 5, 10 or 15 years.

This continues throughout the asset’s useful life. For a patent, that means until the patent expires.

How to calculate amortisation

Calculating amortisation depends on the method you choose, but the basic idea stays steady. You record the purchase price, then write off a set amount each year.

The amount you amortise each year depends on:

• the value of the asset
• the asset’s useful life
• the amortisation method you apply

Some accounting software handles these calculations for you. For financial reporting, your method follows Singapore Financial Reporting Standards, while the IRAS sets the rules for the writing-down allowances you can claim for tax.

An accountant or bookkeeper can help you avoid costly mistakes. You’ll find one in the Xero advisor directory.

Four common methods of amortisation

The method you use for accounting follows Singapore Financial Reporting Standards, while the IRAS sets the rules for the writing-down allowances you can claim for tax. Check with an expert before you settle on a method.

1. Straight-line amortisation: you write off an equal portion of the asset’s value each year of its useful life. For example, a $150,000 asset with a 15-year life would be amortised $10,000 per year.
2. Declining balance method: you amortise more in the early years and less later on. If an asset costs $10,000, you might amortise 30% per year, so $3000 in year 1. The remaining $7000 is then amortised 30% the next year, giving $2100, and so on until it’s fully written off.
3. Double declining balance method: this is a form of declining balance, with the rate set by dividing 2 by the asset’s useful life. An asset with a 5-year life would be amortised at 40% per year (2 / 5 x 100 = 40%).
4. Annuity method: you amortise the asset based on the income it earns each year. This needs a model of the lifetime income the asset will generate, which makes it the most complex method.

Amortisation vs depreciation

Amortisation and depreciation work in much the same way, but they apply to different kinds of assets. The difference comes down to whether the asset is physical.

Amortisation is the term for intangible assets, the non-physical things like patents, copyrights and licences. Depreciation applies to tangible assets, the physical things like vehicles, tools and equipment. For the full picture, read our guide on how depreciation works.

Simplify amortisation with Xero

Tracking intangible assets and their amortisation gets easier when everything sits in the same place. Xero brings your balance sheet, expenses and reports together, so you can see how each asset affects your profit and spend less time on the books. Get one month free.

FAQs on amortisation

Here are answers to some frequently asked questions about amortisation for small businesses in Singapore.

Is amortisation tax-deductible in Singapore?

No, accounting amortisation is added back and isn’t deductible on its own. You may instead claim writing-down allowances on qualifying intellectual property rights under Section 19B, usually over 5, 10 or 15 years.

What can and cannot be amortised?

Finite-life intangibles like patents, licences and software can be amortised, while indefinite-life ones like goodwill can’t. If an indefinite-life asset later takes on a finite life, you start amortising it from that point.

What happens when an asset is fully amortised?

Once an asset is fully amortised, its book value reaches zero and you stop recording amortisation expense for it. It can stay on your books until you dispose of it, even if you’re still using it.

Does amortisation affect cash flow?

No, amortisation is a non-cash expense, so it lowers your reported profit without moving any money. The cash left your business when you bought the asset, not as it’s amortised.

What’s the difference between amortisation and depreciation?

Both spread an asset’s cost over time, but amortisation applies to intangible assets and depreciation to tangible ones. The mechanics are otherwise very similar.

Related terms

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

Learn more about amortisation

• What is depreciation?
• Small business accounting
• Accounting and bookkeeping guides