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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.
To amortize the expense, your business's accountant must deduct $1,000 from your business's revenue each year for 15 years ($15,000/15 years = $1,000). During the third year, the accumulated amortized cost of the patent would be $3,000 ($1,000 x 3 years = $3,000). During the final year, the amortized cost of the patent would equal its original purchase price of $15,000 ($1,000 x 15 years = $15,000).