METHODS There are two methods of amortization, the straight-line and effective interest methods. Straight line is simpler and is much more common in practice, but the effective interest method is preferable because it provides a constant yield on the recorded value of the investment. Both methods will be illustrated in this chapter. The effective interest method must be used whenever the premium or discount is , straight line may be used when the results are not materially different than the effective interest method. Fortunately, this is a common outcome! EXAMPLE: EFFECTIVE INTEREST AMORTIZATION Using the effective interest amortization method, interest income is measured as a constant percentage.
