# What is the interest method of amortization?

**Interest Method of Amortization**? The effective

**interest method**is an accounting practice used for discounting a bond. This

**method**is used for bonds sold at a discount; the amount of the bond discount is

**amortized**to

**interest**expense over the bond's life.

Herein, which method of amortization is better -- straight line or effective interest method Why?

In short, the **effective interest rate method** is **more** logical than the **straight**-**line method of amortizing** bond premium. The **effective interest rate** is multiplied times the bond's book value at the start of the accounting period to arrive at each period's **interest** expense.

Subsequently, question is, what are the two methods of amortization of bonds discount premium? If the company uses the **amortized** cost approach to measure a long-term debt, it can use **two methods** to **amortize** the **discount** and the **premium**: the effective interest rate **method**, or. the straight-line **method** (allowed only under U.S. GAAP).

Herein, what is amortized interest?

**Amortization** is the process of spreading out a loan into a series of fixed payments over time. You'll be paying off the loan's **interest** and principal in different amounts each month, although your total payment remains equal each period. The **interest** costs (what your lender gets paid for the loan).

Why do we amortize bonds?

In this way, an **amortized bond** is used specifically for tax purposes because the **amortized bond** discount is treated as part of a company's interest expense on its income statement. The interest expense, a non-operating cost, reduces a company's earnings before tax (EBT) and, therefore, the amount of its tax burden.