When the management has determined a useful life to an asset, the depreciable amount (acquisition cost or carrying value less any residual value if applicable) is allocated on a systematic basis over its useful life. In other words the value is expensed over determined months using one of the two methods available.

First things first, the amortization starts when the asset is available for use and ceases when the asset is derecognized or reclassified as held for sale. The period between those two dates is the expected period of useful live.

Now, continuing to the expense part – the amortization method should reflect the pattern in which the asset’s future economic benefits are expected to arise from the use of the asset. Means of such measuring are for an example units produced. It may be that first two years out of five in total use up to 60% of the assets resources and the remaining three years use the remaining 40%. If there is such a case, the amortization method should reflect such usage. Just to make it more clear with one example. Let’s say we have an asset with acquisition value of 100 thousand EUR and useful life on 5 years. When using the same percentage brought above, it means that in first 2 years, the expense is 60 thousand (30 thousand per annum and 2.5 thousand per month). For the remaining 3 years the total expense is 40 thousand (13.3 per annum and 1.1 per month).

However, if such pattern cannot be determined reliably, a straight-line method shall be used instead. This would mean that the expense is the same in every period (i.e. month).

Essentially this is again a management estimate which as always needs to be reasoned.