I don't have much knowledge when it comes to finances and accounts, so a sincere thank you to quayside and to everyone who has helped people like me in this thread thus far. I was just wondering if any of you could clarify a few things?
Regarding amortisation, I'm inclined to understand it, from what I've read in this thread, in one of two ways.
Either: it is where the money spent on buying a player (the player's transfer fee) is drawn out and shown bit by bit on the profit and loss accounts, over the period of the player's contract. So a player is bought for £10 million on a four year contract, and this £10 million spent is shown, on the profit and loss accounts, as a £2.5 million loss for each of four years. The money may go out immediately, as a lump sum, but it is drawn out as a cost for the purposes of the accounts. In this case, the club has lost actual money - money has been spent, and its loss has been drawn out on the accounts.
Or: it is where a player is simply valued by the club as an asset, with the valuation of the player equating to the amount spent on buying him, and the loss shown on the profit and loss accounts is based on the player theoretically (in accordance with financial practice or whatever) losing value over the years of his contract. So a player is valued at £10 million, and his value decreases by £2.5 million for each of four years, until he's finally valued at nothing. In this case, the club doesn't lose actual money - the £10 million they've actually spent is a seperate issue - this amortisation involves only the loss it suffers in terms of the valuation of its assets.
If anyone can specify which of these two options amortisation is, or can point out where and why I'm entirely wrong with both options, I will be really grateful.
