Intangible Assets
Intangible assets are identifiable non-monetary assets without physical substance, such as patents, trademarks, copyrights, and customer lists, recognized at cost and amortized over their useful lives if finite.
Explanation
Intangible assets with finite useful lives are amortized over their estimated useful life using the straight-line method (or another systematic method reflecting the pattern of benefit consumption). Intangible assets with indefinite useful lives (like certain trademarks) are not amortized but tested for impairment at least annually.
Internally developed intangible assets generally cannot be capitalized under U.S. GAAP — research and development costs are expensed as incurred, with limited exceptions for software development costs. Intangible assets acquired in a business combination are recognized separately from goodwill if they meet the contractual-legal criterion or the separability criterion.
Key Points
- •Finite-lived: amortized over useful life
- •Indefinite-lived: not amortized, tested for impairment annually
- •R&D costs generally expensed as incurred
- •Acquired intangibles recognized separately from goodwill in business combinations
Exam Tip
Know the distinction between finite and indefinite-lived intangibles, and remember that internally generated goodwill and most internally developed intangibles cannot be capitalized.
Frequently Asked Questions
Related Topics
Goodwill Impairment
Goodwill impairment occurs when the carrying amount of a reporting unit exceeds its fair value, requiring a write-down of goodwill to the extent of the excess, not below zero.
Research and Development Costs
Research and development costs are generally expensed as incurred under U.S. GAAP (ASC 730), with limited exceptions for software development and certain assets with alternative future uses.
Business Combinations (ASC 805)
A business combination occurs when an acquirer obtains control of one or more businesses, accounted for using the acquisition method under ASC 805.
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