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Learning to Invest / Reading Financial Statements
|Subject: A Question on Amortization||Date: 11/9/2011 11:43 PM|
|Author: RoyalScribe||Number: 3846 of 3964|
I am going back to the basics of financial statement analysis and have a question on amortization. Here is what I found on the topic:
"Amortization is the write-off of an intangible asset over time. Similar to depreciation, amortization reflects the declining value of an asset over its useful life. Under GAAP (generally accepted accounting principles), intangibles should be amortized over at least 5 years and not more than 40 years."
Here is my question: If goodwill is amortized over a period no longer than 40 years, is the value of the brand no longer present on the balance sheet?
As an example to further explain my question, if I were to buy Coca-Cola Corporation today, I would surely pay more than book value due to the great brand. As I continue to operate this company and time goes on, I am slowly amortizing away the goodwill, which at the moment is considered an asset. If the value of the brand is not decreasing and yet I am still amortizing the goodwill, does brand value just move off the balance sheet, or am I just looking at this from the wrong angle?
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