Future Business Leaders of America (FBLA) Accounting Practice Test

Which of the following is NOT a characteristic of amortization?

1. It applies to intangible assets

2. It uses a straight-line method

3. It spreads costs over specific time frames

4. It increases asset values over time

The correct answer is: It increases asset values over time

Amortization is a method used in accounting to gradually reduce the cost of an intangible asset over its useful life. This process is characterized by several key features that distinguish it from other accounting practices. When considering the provided options, the characteristic that is not associated with amortization is that it increases asset values over time. Generally, amortization serves to decrease the book value of an intangible asset gradually as time progresses. Each amortization expense reflects the consumption of the asset's value, which ultimately leads to a lower asset value on the balance sheet, rather than an increase. On the other hand, amortization does apply to intangible assets, such as patents and trademarks, aligning with the first characteristic. It often employs a straight-line method, meaning that the same amount is expensed each accounting period over the asset's useful life, consistent with the second point. Additionally, amortization effectively spreads the costs of these assets over specific time frames, as indicated in the third characteristic, tying the expense recognition to the periods in which the assets help generate revenue. Thus, the correct identification of which aspect is not characteristic of amortization stems from the fundamental purpose and nature of the process itself, which focuses on the allocation of cost rather than value appreciation.