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Amortization of Intangible Assets. To illustrate the amortization of an intangible asset, imagine XYZ Biotech spends $30 million dollars on a patent with a useful life of 15 years. Theoretically, to account for the expense over a 15-year period, XYZ Biotech records $2 million each year as an amortization expense.
How to Account for Depreciation and Amortization. Assume, for example, that a carpenter uses a $32,000 truck to perform residential carpentry work, and that the truck has a useful life of eight years. The annual depreciation expense on a straight-line basis is the $32,000 cost basis divided by eight years, or $4,000 per year. On the other hand, assume that a corporation pays $300,000 for a patent that allows the firm exclusive rights over the intellectual property for 30 years, and the firm's accounting department posts $10,000 of amortization expense each year for 30 years. Both the truck and the patent are used to generate revenue and profit over a particular number of years.