amortization

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amortization

(ăm'ərtəzā`shən, əmôr`–), reduction, liquidation, or satisfaction of a debt. The term amortization may also refer to the sum used for that purpose. The term is commonly used in ascertaining the investment value of securities. Thus, if a security is bought at more than its face value (i.e., at a premium), a part of the premium is periodically charged off in order to bring the value of the security to par at maturity; if the security is bought at less than its face value, the discount is similarly charged off. Paying off a mortgage or any other debt by installments or by a sinking fundsinking fund,
sum set apart periodically from the income of a government or a business and allowed to accumulate in order ultimately to pay off a debt. A preferred investment for a sinking fund is the purchase of the government's or firm's bonds that are to be paid off.
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 is amortization. Amortization by paying off a certain number of bonds each year is practiced by public corporations. National governments of limited credit as well as private companies commonly amortize by sinking funds. Governments with stronger credit usually refund debts by issuing new bonds. The satisfying of a debt by a single payment may be termed amortization. Amortization of a fixed asset refers to the depreciationdepreciation,
in accounting, reduction in the value of fixed or capital assets, as by use, damage, weathering, or obsolescence. It can be estimated according to a number of methods.
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 of a nonmaterial investment over its estimated average life.