What is the Amortization Method?

Amortization, Amortization in English, refers to the accounting treatment method of amortizing the purchase cost of operating assets other than fixed assets that can be used for a long time according to their useful lives, similar to depreciation of fixed assets. Amortized expenses are included in management expenses to reduce current profits, but have no effect on operating cash flow.

Amortization

According to Article 49 of the Rules of the Tax Law, the preparation expenses of an enterprise shall be amortized in stages starting from the month following the month in which production and operation begin, and the amortization period shall be no less than 5 years. Land use rights shall be separately calculated as amortization of intangible assets. The amortization period of intangible assets is amortized over the period stipulated in the contract if there is a period of time stipulated in the contract, and amortized over a period of not less than 10 years if it is not stipulated in the contract.

Changes in amortization methods in old and new accounting standards

In February 2006,

The accelerated amortization method means that the amortization amount of intangible assets is allocated to each amortization period on a

Accelerated amortization method (5 photos)

An accounting method in which the annual burden of amortization is decreasing year by year.

Compared with the straight line amortization method, the accelerated amortization method is more in line with the theory of cost compensation, which is more conducive to the early compensation of costs, is more conducive to reducing the investment risk of intangible assets, and expands the production and operation of enterprises, so it has higher practical significance.

necessity

I. The adoption of accelerated amortization is the need of the times

As a knowledge-based economic resource, intangible assets have become increasingly important in the knowledge economy, and the proportion of knowledge-based intangible assets will increase significantly, even in a high-tech field. According to statistics, the ratio of tangible assets to intangible assets of some advanced enterprises in the OECD is 1: 2-3. In 1998, the ratio of intangible assets to tangible assets of China's Haier Group was 1.78: l. After China joined the WTO, The investment scale and investment proportion of intangible assets will be further expanded. Therefore, in order to reduce the investment risk of intangible assets and enable investors to obtain better economic benefits, investors are objectively required to follow the principle of soundness in organizing intangible asset accounting in order to strive to reduce investment risks. The development of the times requires that the amortization method of intangible assets should be diversified, and the amortization method should be more robust, which provides an opportunity to use the accelerated amortization method.

2. Adapt to the requirements of the characteristics of intangible assets

The economic value of intangible assets is largely affected by external factors, such as technological progress, changes in market demand, competition in the same industry, etc. Therefore, on the one hand, its expected profitability is highly uncertain, on the other hand It is also difficult to discern how much economic benefit an intangible asset can bring to an enterprise. It can be seen that investment in intangible assets is a high-risk investment project, the success rate of investment is not high, and the intangible assets that have been obtained may lose their due role due to technological progress or accidental operating errors, so protect investors Investment interests in this area are the key to investment in intangible assets. The application of the accelerated amortization method in the accounting of intangible assets is beneficial to protect the interests of investors and prevent investment risks. Therefore, it can better adapt to the characteristics of the intangible assets themselves, thereby making the application of the accelerated amortization method possible.

3. Conducive to further improving China's modern financial accounting system

In order to meet the requirements of world economic integration, especially the requirements of China's accounting system after joining the WTO, China's accounting system is undergoing a revolution of time significance, and is gradually in line with the international accounting system. The promulgation and implementation of "Enterprise Accounting Standards-Intangible Assets" is exactly the embodiment of this change, but from the perspective of development, any superstructure must adapt to the requirements of the economic foundation of a certain period, so the accounting system of any period Both should be further improved and developed, so the author believes that there are still several issues in this standard that need to be further explored.

(1) Amortization method and amortization period

Article 15 of this standard states: "The cost of intangible assets shall be amortized evenly over the expected useful life from the month of acquisition." The article stipulates that the amortization of intangible assets is based on a straight-line method and a single method, which does not comply with the principle of soundness and is not conducive to reducing the investment risk of intangible assets.

In addition, Article 15 of the Standard also clearly stipulates the amortization period of intangible assets. Compared with the past, the amortization period has been shortened. Although it is beneficial to reduce the investment risk of intangible assets, it is also in some aspects. Regrettably, one is that some types of intangible assets have the validity period stipulated by law or the benefit period specified by the enterprise is relatively long. There is no specific explanation for the method of determining the amortization period in the regulations, so it can be understood that it is determined by the enterprise itself, which gives human factors a chance. The amortization period does not exceed 10 years, and there may be cases that do not match the actual benefit period. Phenomenon, it is easy to manipulate profits artificially, so that the financial status of the enterprise and the authenticity of business results are affected to some extent.

(Two) impairment

The main purpose of the provisions on the impairment of intangible assets in this standard is to accurately reflect the realizable value of the assets and fully reflect the objectiveness, truth, and fairness of financial reporting. At the same time, it also has another purpose, which is to reduce the intangible assets. investment risk. However, the author believes that there are still some shortcomings in the following aspects of the guidelines.

1. Article 16 of this Code

"Enterprises should regularly check the book value of intangible assets, at least once a year." In addition, they also made an estimate of the recoverable amount of the intangible asset in three cases, and the difference between the book value of the asset and the recoverable amount. Confirmation of provisions for impairment. In accordance with this requirement, the book value of intangible assets must be checked once a year, which will undoubtedly make accounting difficult and increase the workload of accountants. At the same time, it is an artificial factor that the enterprise estimates the recoverable amount of intangible assets. Disturbance provided the possibility and provided space for companies to manipulate profits.

2. Article 17 of this Code

"All signs of impairment of intangible assets disappear before an enterprise can reverse all or part of the impairment losses recognized in previous years." How to judge the signs of impairment in this regulation and which judgment method to use is entirely determined by the enterprise, and it also provides convenient conditions for the artificial manipulation of profits.

feasibility

I. Feasibility of accounting treatment

The "Accounting Standards for Business Enterprises-Intangible Assets" stipulates: "Intangible assets refer to non-monetary long-term assets that are not held in kind and are held by an enterprise for the purpose of producing goods, providing services, leasing to others, or for management purposes. From the definition of intangible assets in this standard, we can see that intangible assets are long-term assets, and the benefits of expenditures will involve multiple accounting periods, and their expenditures are capital expenditures, which is the same as fixed assets. Taking advantage of this feature, when the accelerated amortization method is specifically adopted, specific methods of accelerated depreciation of fixed assets can be emulated, such as the double declining balance method, the sum of years method, and the declining balance method. The following examples are used to illustrate the use of these methods.

(1) Double declining balance method

The double declining balance method is a method for calculating the amortization amount of intangible assets based on the amortized value of intangible assets at the beginning of each period and double the straight amortization rate. The calculation formula is as follows:

Annual amortization amount = amortized value of intangible assets at the beginning of the period × annual amortization rate,

Annual amortization rate = 2 ÷ estimated amortization period × 100%

In addition, the double declining balance method will be converted to the straight line method in the last two years of the amortization period, of course, this is only a general situation. In the case of a high residual value rate or no residual value, it will not be converted to the straight line method in the last two years. The general judgment criterion is that when the amortization amount calculated by the straight-line method in a certain year is greater than or equal to the amortization amount calculated by the double-declining balance method, the straight-line method is adopted from this year.

For example: an enterprise purchases a trademark right, and the total expenditure incurred during the purchase is 150,000 yuan. It is assumed that the amortization period determined in accordance with the guidelines is 5 years (the guidelines require that the amortization period not exceed 10 years).

Yes, the annual amortization rate = 2 ÷ 5 × 100% = 40%

Amortization amount in the first year = 150000x40% = 60000, Amortization amount in the second year = (150,000 minus 60,000) × 40% = 36000, Amortization amount in the third year = (150,000 minus 60,000 minus 36000) / 3 = 18000,

Amortization amount for the fourth year = (150000 minus 60,000 minus 36000) / 3 = 18000, fifth year amortization amount = (150,000 minus 60,000 minus 36000) / 3 = 18000

(B) the sum of years

This method uses a sum of the years of amortization of intangible assets as the denominator, multiplies the intangible assets to be amortized by the fraction of the numerator, and multiplies the total amortization amount of the intangible assets to calculate each Amortization method of annual intangible assets. The calculation formula is as follows:

Annual amortization amount = total amortization amount of intangible assets × annual amortization rate

Annual amortization rate = (total amortized years-amortized years) x2 / (total amortized years x (total amortized years + 1))

Taking the above example, the process of calculating the amortization amount based on the sum of years is as follows:

Denominator of sum of years method = 1 + 2 + 3 + 4 + 5 = 5 x (5 + 1) / 2 = 15

Amortization amount for the first year = 150000x (5/15) = 50,000, Amortization amount for the second year = 150000x (5-1) / 15 = 40000, Amortization amount for the third year = 150000x (5-2) / 15 = 30000,

Amortization amount for the fourth year = 150000x 5-3 / 15 = 20000, Amortization amount for the fifth year = 150000x 5-4 / 15 = 10000

The above two methods calculate the annual amortization amount, such as monthly accrual can be converted into a monthly amortization rate to calculate the monthly amortization amount. The other specific methods of the accelerated amortization method of intangible assets are no longer listed.

Second, the accelerated amortization method is feasible in the scope of use

The reference to the scope of use of the accelerated amortization method has two meanings, one is which types of intangible assets are amortized using the accelerated amortization method, and the other is the enterprises whose intangible assets are amortized using the accelerated amortization method.

China's "Enterprise Accounting Standards" stipulates that the intangible assets included in the current enterprise accounting system include patents, non-patented technologies, trademark rights, copyrights, land use rights and goodwill. The content will continue to expand. It is generally believed that in addition to the six traditional intangible assets, ISO9000 quality system certification, environmental management system certification, green food logo use rights, Internet domain name registration, and marketing assets. Organizational management assets should also be listed as the accounting content of intangible assets.

It is precisely because of the expansion of the content of intangible assets that the author believes that the accelerated amortization method is feasible in the scope of use. The accelerated amortization method is used for those types of intangible assets that are changing with technology, and the types of intangible assets with stable values Use the straight line method. Regarding the question of which companies use the accelerated amortization method of intangible assets, the author believes that the straight line method is used in general enterprises, but has an important position in China's national economy and has rapid technological progress. The amortization of intangible assets in machinery enterprises, aircraft manufacturing enterprises, automobile manufacturing enterprises, chemical manufacturing enterprises and pharmaceutical manufacturing enterprises as well as other special industries can be carried out by accelerated amortization.