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Financial Accounting and Reporting/Blueprint/2.F

Intangible assets

Area 2: Select Balance Sheet Accounts (30-40%)

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Topics

  • Finite vs. indefinite-lived intangibles
  • Purchased software and cloud computing

Lessons

  • Intangible AssetsFree

Study Frameworks

Intangible Asset Classification and Measurement

Intangible Assets (ASC 350)
Finite-Lived
Amortize over useful life (straight-line default)
Review for impairment when events indicate (ASC 360)
Examples: patents, copyrights, customer lists, licenses
Indefinite-Lived
No amortization
Annual impairment test (or triggering event)
Examples: trade names, FCC licenses, goodwill
Goodwill (Acquisition Only)
Never amortized (public); optional amort (private)
One-step impairment: FV of reporting unit vs. carrying
Impairment loss capped at carrying amount of goodwill
Internally Developed
R&D costs: expense as incurred
Software for sale: capitalize after tech feasibility
Internal-use software: capitalize in app dev stage

Intangible Asset: Amortize or Test for Impairment?

Does the intangible asset have a finite useful life?
Yes
Amortize over useful life. Are there triggering events suggesting the carrying amount may not be recoverable (ASC 360)?
Yes
Is the undiscounted future cash flow from the asset less than its carrying amount?
Yes
Impairment loss = Carrying Amount − Fair Value
No
No impairment — continue amortizing
No
No impairment test needed this period — continue amortizing
No
Is the entity electing the qualitative assessment (Step 0)?
Yes
Is it more likely than not (>50%) that FV < carrying amount?
Yes
Quantitative test: Is fair value < carrying amount?
Yes
Impairment loss = Carrying Amount − Fair Value
No
No impairment
No
No impairment — stop here
No
Quantitative test: Is fair value < carrying amount?
Yes
Impairment loss = Carrying Amount − Fair Value
No
No impairment

Intangible Assets — Recognition and Measurement

CategoryAmortizationImpairment TestKey Rule
Finite-lived (patent, copyright, customer list)Straight-line over useful life (or pattern of benefit)Trigger-based (ASC 360 — undiscounted CF test first)Impairment = Carrying Amt − FV when undiscounted CF < carrying
Indefinite-lived (trade name, FCC license)NoneAnnual or trigger-based (FV vs. carrying)Impairment = Carrying Amt − FV (one-step)
Goodwill (acquisition only)None (public) or optional 10-year SL (private)Annual or trigger-based (reporting unit level)Impairment capped at carrying amount of goodwill
Software for external sale (ASC 985)Greater of revenue ratio or straight-lineNRV test each periodCapitalize after technological feasibility established
Internal-use software (ASC 350-40)Straight-line over useful lifeTrigger-based (ASC 360)Capitalize costs in application development stage only
Practice These Topics(51 questions)