Reputed automobile / consumer durables companies outsource production of parts to vendors and supply them tools/dies/moulds . However they need amortisation cost of tooling supplied by them as tool have limited useful lives of after which their residual lives become almost scrap .
The amortsiation is defined as writing of an intangible asset investment over the projected life of assets , which in this case , are tools/dies/moulds required in the manufacture of parts. The amortisation refers to expensing the acquisition cost of tools minus residual value in a systematic manner over the estimated useful economic lives so as to reflect their expiration , obsolescence or other decline in values as a result of use with the passage of time.
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