Amortization is used to depreciate intangible assets like Intellectual Property (IP). If google has invested $50 million in R&D this year. Then this expense will be split-up over the life of these products. Hence going forward the amortization expense will increase by this new amount. If it is a 10 year amortization, then yearly amortization expense will increase by $5million ($50 million divided by 10).
Sep 29 2013 03:51 PM
Other thank IP, Amortization is also used to depreciate "Goodwill". "Goodwill" is the premium paid during an acquisition. Goodwill is essentially the value of all the intangible items over and above the book value of the company. Since this is an asset, it is capitalized on the balance sheet and then amortized.