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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.
This allows us to clearly see where expenses are changing and can assist in analysis. To find out what we amortize each month, first we need to find out the total expense over the life of the contract: $3,000 x 10 months = $30,000. So each month we will want to expense $2,500 for rent ($30,000/12 months). The difference between this expense and our actual cash payment is amortization. The journals are as follows: