How to calculate amortization expense?
Since finite life intangible assets are capitalized onto the balance sheet at the acquisition/purchase price, that amount represents the capitalized cost base to amortize. Assuming the straight-line method is used, the company divides the capitalized cost by the estimated useful life, and that gives you the amortization expense per year to recognize in the financial statements.
Similar to depreciation, amortization is a non-cash expense, so there is no cash flow impact. Amortization is added back to calculated reported EBITDA.
You might also be interested in...
What does it mean to amortize an intangible asset?
Amortization of intangible assets is the same thing as depreciating physical (tangible) assets. If the company has finite life, then the company would amortize the intangible asset over the estimated useful life. For example, if the company acquires a trademark that has a useful life of 10 years, then after 10 years, the net book […]
Why is depreciation and amortization expense considered a non-cash expense?
Depreciation and amortization are considered to be a non-cash expense because the company does not have an actual cash outflow for those expense. Depreciation and amortization are recorded to reduce the taxable income for a company. As you can see below, there is no cash outflow when depreciation expense is recorded.