The useful life of an intangible asset should be considered indefinite if no legal, regulatory, contractual, competitive, economic, or other factors limit its useful life to the reporting entity. The term indefinite, however, does not mean infinite or indeterminate, as described in ASC 350-30-35-4
All factors that are pertinent to whether an intangible asset has an indefinite life should indicate that there is no foreseeable limit to the period over which the asset is expected to contribute to the reporting entity’s cash flows. All available evidence should be considered and based on historical and projected trends in demand, competition, technological change, and other economic factors affecting the entity and its industry.
It may be difficult to support an indefinite life, except for certain classes of intangible assets (e.g., Federal Communications Commission licenses and trade names). For example, it would be rare for a customer-related intangible asset to have an indefinite life due to the frequency of customer turnover and changes in relationships. In considering whether an intangible asset has an indefinite life, it may be important to consider how an entity determines the fair value of an intangible asset and assesses that asset for impairment (e.g., a forecasted deterioration in annual cash flows may be inconsistent with an indefinite useful life determination).
Indefinite-lived intangible assets should be reassessed each reporting period to determine whether events or circumstances continue to support an indefinite useful life in accordance with ASC 350-30-35-16
. See BCG 8.2.1
for further information on the accounting considerations when an asset that is not being amortized is subsequently determined to have a finite useful life.
Example BCG 8-1 and Example BCG 8-2 illustrate the determination of useful lives.
EXAMPLE BCG 8-1
Intangible asset determined to have an indefinite life
As part of ABC Company’s purchase of XYZ Company, ABC recognizes an intangible asset related to XYZ’s registered trademark, which is used to distinguish a leading consumer product. The trademark has a remaining legal life of seven years, but is renewable every 10 years for minimal cost. ABC intends to continuously renew the trademark and evidence supports its ability to do so. Analysis of the product life cycle provides evidence that the trademarked product will generate cash flows for ABC for an indefinite period of time.
What useful life should be assigned to the trademark?
The trademark may have an indefinite useful life because it is expected to contribute to cash flows indefinitely and the associated costs of renewal are not significant. Therefore, the trademark would not be amortized until its useful life is no longer indefinite. However, the trademark would need to be tested for impairment annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired in accordance with ASC 350-30-35-18
EXAMPLE BCG 8-2
Intangible asset determined to have a finite life
As part of Entity B’s acquisition of Entity M, Entity B recognizes an intangible asset related to Brand K, a brand known for its association with the production of an economic alternative to carbon-based fuel. Management of Entity B has committed significant resources in support of Brand K and continued improvement of the underlying technology. There is significant competition in this technological area and therefore the technology is subject to constant change and improvement. Brand K does not have an established pattern of surviving changes in the underlying technology.
What factors should be considered by Entity B in determining the useful life that should be assigned to the brand?
Since the technology is subject to constant change and improvement, a significant discovery may make previously cutting-edge technology obsolete, resulting in reduced utilization of the brand. Additionally, there is no evidence to support an assertion that Brand K would continue to exist beyond the life of the current underlying technology. These factors would likely make it difficult to conclude that the entity would benefit economically from the brand indefinitely. On the other hand, if Brand K had an established pattern of surviving changes in the underlying technology, Entity B may have been able to support Brand K having an indefinite life.