What does it mean by Amortization?
To reduce the use of reason in accounting or Amortization covered the naked with a garment is the art of what put on and simultaneously by the asset. To borrow, a repayment term of the loan is based on revenues. When applied to the asset, depreciation is similar to depreciation. Few important points are as follows:
The term “depreciation” refers to two things. The first amortization process of regular repayment of principal and interest until repayment. The amortization plan is to balance the current to reduce loans (such as mortgage loans) because the car will be paid in installments. Second, expanding the capital amortization cost of intangible assets is usually conducive to the specific living space of the tax system and willingness.
Amortization of loans
Amortization can be paid overtime at an interest rate and periodic figures sufficient to pay off the debt and pay off the loan in full at maturity. For loans and auto loans, a higher percentage of the monthly fixed repayment goes to the initial interest rate of the loan. With each subsequent payment, a larger percentage of the payment is transferred to the main loan. Depreciation can be calculated using the most modern financial calculators, spreadsheet software packages such as Microsoft Excel, or online depreciation tables. The amortization plan starts with a special loan balance. For monthly payments, interest payments are calculated by multiplying the interest rate by the outstanding loan balance and dividing by 12. The principal to be paid in a given month is the total monthly payment (fixed amount) minus the interest payment for that month.
In the next month, the arrears of the loan are calculated as the arrears of the previous month, which is the most recent principal. Interest payments are recalculated based on the new arrears, and the pattern continues until all payments are made and the balance at the end of the loan period is zero. The formula for calculating the monthly principal due to a written loan is as follows:
Principal Payment = Total Monthly Payment – (Outstanding Loan Balance * (Interest Rate / 12 Months))
Generally, the total monthly payment is shown when taking a loan. However, if you are trying to calculate or compare monthly payments for a number of factors, such as the amount of the loan and its interest, you should also calculate the monthly payments. If, for any reason, you need to pay the total monthly bill, the formula is:
Total Monthly Payment = Loan Amount [ i (1+i) ^ n / ((1+i) ^ n) – 1) ]
i = monthly interest. The annual percentage rate of charge shall be divided by 12. For example, if the annual interest rate is 3%, the monthly interest rate will be 0.0025 (the annual interest rate is 0.03 / 12 months).
n = number of repayments within the loan period. Multiply the number of years in the rental period by 12. For example, for a 4-year car loan, there will be 48 repayments (4 years * 12 months)
Amortization of intangible assets
Depreciation may also indicate the Amortization of intangible assets. In this case, depreciation refers to the payment of the cost of the intangible asset over the estimated useful life of the asset. Measures the use of the value of intangible assets (such as goodwill, patents, or copyrights). Depreciation is calculated in the same way as depreciation (tangible assets) and impoverishment (for natural resources).
When companies reduce costs over time, they help to reconcile the cost of the product with the same amount of money available in the same period in accordance with GAAP. For example, a company benefits from the use of long-term assets over a number of years. As a result, it gradually recognizes prices during the use of resources. The IRS has timelines that determine the maximum number of years that property and other non-related items should be used for taxes. Reducing the cost of intangible assets is also important in the tax system. The Internal Tax Service (IRS) allows taxpayers to deduct other items: oil and gas testing, air pollution reduction services, corporate financing, research and development (R&D)), leasing, deforestation, and the use of natural resources and forestry. And intangibles such as establishment, personal ownership, legitimacy, and symbols.
Example of withdrawal
For example, let’s take a look at a 30-year car loan with a 3% interest rate of $ 30,000. The monthly payment is $ 664.03 ($ 30,000 ((.0025 (1.0025 ^ 48) / (1.0025 ^ 48) -1)))). In the first month, the monthly interest payment of $ 664.03 (debt repayment $ 30,000 * 3% interest / 12 months) is $ 75.00, while the remaining $ 589.03 (amount monthly total of $ 664.03 ($ 75.00 interest)) going into adult interest. The total monthly payment is the same, as long as adults share in part, and interest rates fall. Last month, only $ 1.66 was paid off in interest as the current debt is lower than the original loan amount.
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