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Amortisation is a term used in accounting and finance that refers to the process of spreading the cost of an asset over its useful life. The term is derived from the Latin word “amortire,” which means “to kill off gradually.” For example, a company that purchases a patent for $1 million and expects the patent to have a useful life of 10 years may amortise the cost of the patent at an annual rate of $100,000. Similarly, a company that buys a building for $5 million and expects it to have a useful life of 30 years may depreciate the cost of the building at a rate of $166,666 per year. It’s important to note that amortisation is different from depreciation. While depreciation is used for tangible assets, amortisation is used for intangible assets (such as patents, trade marks and copyrights). The amortisation of intangible assets is important because it helps to reflect the economic reality of the asset and its contribution to the company’s revenue over time.