FAR Intangible assets: recognition, useful life, amortization, software, and impairment

The rules, one page each

1. Patent and trademark costs: capitalize vs expense (GAAP)Sort it

   Capitalize the purchase price and costs directly attributable to obtaining or successfully defending a specific identifiable intangible; expense R&D, advertising/brand-building, training, start-up/organization, and unsuccessful defenses. Indefinite‑lived intangibles are not amortized; test for impairment.

2. Indefinite vs finite? Trademarks, licenses, renewals (GAAP)Contrasting cases

   If there is no foreseeable limit on the period of expected cash flows, the intangible is indefinite-lived and not amortized; otherwise it is finite-lived and amortized over its useful life, constrained by legal or contractual limits. Indefinite-lived intangibles are tested for impairment at least annually; finite-lived intangibles follow finite-lived impairment rules.

3. Amortize patents over shorter life; capitalize defense costsWorked example

   Include purchase price and directly attributable costs, including successful defense, in the patent’s basis. Amortize straight-line over the shorter of remaining legal life and expected useful life, beginning when ready for intended use; revise prospectively for new costs or life changes.

4. Internal-use software: what to capitalize and when amortization startsStep by step

   Under ASC 350‑40, expense preliminary‑project and post‑implementation/training costs; capitalize application‑development stage direct costs (payroll, contractors, certain licenses); begin amortization when the software is placed in service. Software to be sold is different: capitalize after technological feasibility and before general release.

5. Business combinations: which intangibles are recognized and how to treat IPR&DSide by side

   ASC 805: Recognize identifiable intangibles at fair value if separable or arising from contractual/legal rights; do not recognize assembled workforce. Classify lives: amortize finite‑lived intangibles; do not amortize indefinite‑lived items. Acquired IPR&D is capitalized as an indefinite‑lived intangible until the project is completed or abandoned.

6. Intangible impairment: finite vs indefinite, life changesDecision tree

   Finite-lived intangibles held and used are screened for recoverability by comparing undiscounted future cash flows with carrying amount; if not recoverable, write down to fair value. Indefinite-lived intangibles are tested by comparing fair value with carrying amount and any shortfall is recognized. When an indefinite-lived intangible becomes finite, test for impairment on the change date, then amortize prospectively; if a finite-lived asset becomes indefinite, cease amortization prospectively without reversing prior amortization.