Trademark and franchise licensees: Those who own a trademark or franchise have certain rights over a registered trademark for a few years. They're valid for only a few years, and many people who have one use the straight-line amortization method to determine the annual amortization expense. Patent holders: A patent is a way for companies to protect their inventions. It's a simple method that borrowers can easily understand. They help clients choose between shorter or longer amortization periods, depending on the amount they owe.īank loan officers: Like mortgage experts, bank loan officers often plan payment plans for their clients using the straight-line amortization method. Mortgage loan officers: When discussing mortgage plans with their clients, they present the straight-line amortization method as an alternative to the mortgage-style amortization method, which divides the debt into equal payments. It often helps them to create an amortization schedule and to reduce tax liability. Some people who use the straight-line amortization method in their work include:Īccountants: Accountants use straight-line amortization to outline the expensing of an asset over a longer period to their clients and create a payment plan. Related: Guide to Amortization: Definition, Benefits and Calculations Who uses straight-line amortization? Intangible asset amortization = (book value - expected salvage value) / number of periods The straight-line amortization formula is: You can assign more to the principal amount when you increase the proportion of every repayment. The principal repayments reduce gradually as the proportion of interest expense in the following payments declines. Straight-line amortization for loans ensures a borrower pays interest early in the repayment period. For an intangible asset, you subtract its expected salvage value from the book value and divide the resulting amount by the number of periods of its useful life. For loans, you divide the total amount of interest you owe by the number of periods.
Straight-line amortization helps you determine how much interest to pay for intangible assets, charge the intangible asset's cost and calculate monthly installments for loan repayment, including interest. Straight-line amortization is a way of calculating debt repayment where a company allocates the same amount of interest for each payment until it repays the debt in full.
#Straight line how to#
In this article, we define straight-line amortization, discuss who uses it, explain how to calculate it and provide examples you can reference when calculating one.
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