Amortization is a strategy used in accounting to reduce the book value of a loan or intangible asset over a predetermined period of time, know its meaning in football
When it comes to a loan, amortisation refers to the process of spreading out payments over time. Amortization is analogous to depreciation when applied to an asset.
Explained What Is The Meaning Of Amortization In Football
“When a player is bought, his cost is capitalised on the balance sheet and written-down (amortised) throughout the life of his contract,” . In layman’s terms, transfer fees are spread out throughout the duration of a player’s contract for accounting purposes. If we take an example, then in the case of Chelsea’s recent purchase of Romelu Lukaku, a club amortises €90 million over a five-year deal which means € 19.5m per season.
In essence, amortisation is the player’s transfer price divided by the term of the contract. Depending on how many years the player has played for the club, the amortised worth of the player decreases each year. Ronaldo’s transfer to Juventus is a great example. They paid 100 million dollars for a four-year deal. As a result, Ronaldo’s amortised worth decreases by $25 million per year. Let’s imagine if they sold him for 70 million dollars after two years then They would declare a 20 million plusvalenza in their books since he’s worth 50 million in amortised value by then.
The Accounting Technique When A Player Is Sold Is Another Key Amortization Problem
Let’s take the example of ex-Manchester city star Robinho.
“He was purchased for £32.5 million on a four-year deal in September 2008, thus yearly amortisation was £8.1 million.” After two years, he was sold, and the total amortisation was £16.2 million, leaving a value of £16.3 million on the books. City claimed a profit on sale of £1.7 million in the 2010/11 accounts, based on the £18 million transfer price to Milan. As a result of this agreement, City saw a £18.1 million increase in yearly earnings: £8.3 million lower salaries + £8.1 million lower amortisation + £1.7 million profit on sale.”
This illustrates how clubs write down a player’s transfer value throughout the course of their contract, as well as the fact that, because Robinho was valued £16.3 million two years into his four-year contract, Manchester City made an accounting profit of £1.7 million on his move. Fans would consider the £18 million sale of a player who cost £32.5 million ago to be poor business. It was recorded as a £18.1 million profit increase in the club’s books.
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