Accounting for Goodwill and Other Intangible Assets

CHAPTER 3Amortizing Intangible Assets

Like goodwill, some intangible assets have indefinite lives. An intangible asset is considered to have an indefinite life if the entity finds that there are no “legal, regulatory, contractual, competitive, economic, or other factors” that limit its useful life.¹ However, indefinite life does not mean infinite for the purposes of ASC 350-30;² it simply means the benefits from an intangible asset extend beyond the foreseeable future.³ According to the FASB, most intangible assets have finite lives.⁴ Intangible assets with indefinite lives and goodwill are not amortized, except for goodwill acquired by a private company.⁵

When an intangible asset has a finite life, its remaining useful life must be estimated, and its carrying amount must be amortized over that remaining useful life using an appropriate amortization method.

A. Determining the Estimated Useful Life

The estimated useful life of an intangible asset to an entity is the period over which the asset is expected to contribute either directly or indirectly to the entity's cash flows.⁶ A customer list is an example of an intangible asset that contributes directly to an entity's cash flows and a non-compete agreement is an example of an intangible asset that contributes indirectly to an entity's cash flows (by allowing the entity to retain customers that a past employee otherwise might entice away from the entity).

The FASB has identified six general factors to guide constituents ...