Fair Value Measurement: Practical Guidance and Implementation, 2nd Edition

CHAPTER TEN

The Remaining Useful Life of Intangible Assets

Measuring the remaining useful life of an intangible asset is an important element in measuring the fair value of the asset for financial reporting and disclosure purposes. The length of the useful life is a significant assumption that has potential to materially impact the fair value measurement. Intangible assets with longer lives typically have greater economic returns and higher values than similar, shorter-lived assets. The useful life of an intangible asset is also the principal factor for selecting the period over which the intangible asset is amortized.

FASB GUIDANCE ON DETERMINING THE REMAINING USEFUL LIFE

The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurement, describes the three basic valuation techniques (approaches) for measuring the fair value of an intangible asset. As discussed in previous chapters, useful life is a key consideration when measuring fair value using all three techniques. When measuring fair value using the income approach, the period of time covered by prospective financial information (PFI) for a specific asset should be equal in length to the asset's useful life. Under the market approach, the comparable intangible asset's useful life is one of the principal considerations when determining whether the asset is in fact comparable. The length of time covered by PFI is also a consideration for some market approach methods. In the ...