Amortization

CIOP is an end-to-end supply chain training and certification program designed and developed by supply chain practitioners and consultants. The syllabus was developed in consultation with the industry, which led to Inventory Management Body of Knowledge (IMBoK v3.0). Most of the class discussions you will hear cannot be found in any textbook rather these are all the original contribution from the developers of CIOP. For example, think about the types of inventories such as raw material, work-in-process and finished goods. Out of these three, WIP is the most difficult to sell in the market and that is one of the reasons, WIP should be controlled well. The company has a built-in capability and capacity to sell finished goods, which is their business. The second easy to sell are the raw materials as you know the suppliers, who may either buy-back or at least guide you. But in case of WIP, this is custom manufactured to suit your manufacturing processes and may not well fit any other organisation, hence you may have to sell it as a scrap.

Amortization and storage are two concepts that go hand in hand when it comes to business finance and management. Amortization, also known as cost amortization, is an arithmetic method used to periodically reduce the amortized value of an asset over a specific period of time, usually years. 

In simple terms, amortization is the method of calculating the amount of money that has been paid, and/or the amount that is expected to be paying, over time to purchase an asset with a fixed interest rate. The amortization table or calculator, used to determine amortization, compares current payments of the asset with future amortization rates to determine the amortization value for the particular loan.

One important factor of calculating amortization is the initial loan amount. Amortization does not start at the present time; rather, it begins when the first monthly payment is made, whether at the end of the first year of repayment or the beginning of the next year. For example, if the original loan amount is repaid in twelve months and the amortization starts at the end of the first year, the amortization calculator would indicate that in twelve months, the total loan amount has been repaid plus the first monthly payment. As repayment of the loan continues through the next year, more payments are made until the total loan amount is repaid in full. Similarly, the amortization table would indicate that in twelve months, the first monthly payment would be paid plus the amortization amount for the second year, then the third year, fourth year, etc.

A well-understood concept of amortization is the principle that an investor should calculate the amortization schedule by periodically withdrawing a portion of the outstanding balance. If the withdrawal is done at the start of the period, the investor will get a higher yield than what the amount of the withdrawal could have achieved otherwise. However, the withdrawal should not be done too often as it could cause the investors to pay higher rates. An investor can withdraw part of the outstanding balance by selling a property. In an orderly manner, investors can adjust the payment amount by reducing the length of time to repay the mortgage loan.

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