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• W228980464 abstract "EXECUTIVE SUMMARY * EVEN WITH THE GUIDANCE IN FASB STATEMENT NO. 142, the useful life of certain intangible assets is difficult to judge, particularly assets that involve contracted or legally set terms. Companies use the useful life of assets to guide their decisions on whether or not to amortize them on their financial statements. * FOR INTANGIBLE ASSETS THAT ARE THE RESULT of contractual or legal rights, including patents, licenses, trademarks, franchise and servicing rights, CPAs should ask whether the company intends and is able to renew or extend the contract; whether there are substantial costs associated with renewal; and whether there will be any material modifications to existing contract terms. This will help determine whether the benefits of the asset for amortization purposes will continue beyond the contract period. * IF A CONTRACT IS SILENT ON RENEWAL POSSIBILITIES, CPAs should consider the company's history on this or similar contracts. If this type of contract is new to the company, information from companies in the same industry that have successfully renewed similar agreements may be a useful benchmark. * ONCE IT APPEARS A CONTRACT IS RENEWABLE OR extendable without substantial cost or modification, CPAs can defend assigning it a useful life that is longer than the contract term. If the benefits of the asset will continue indefinitely, it has an indefinite useful life and the company should not amortize it. If the useful life stretches beyond the contract term but is not indefinite, CPAs must make their best estimate of the asset's useful life. * COMPANIES SHOULD ALWAYS CONSIDER HOW A CHANGE in an asset's useful life relates to its value and vice versa. The value of the asset on the balance sheet may be higher or lower than its fair value based on information about the contract. If a company determines that a previously unamortized asset has a finite useful life, the company should begin to amortize it from that point on. Since FASB issued Statement no. 142, Goodwill and Other Intangible Assets, in 2001, CPAs and their companies have paid considerable attention to its guidance on goodwill. Far less thought, however, has been given to intangible assets that also may escape amortization under the criteria in Statement no. 142. (See the box on page 75 for key provisions.) Amortizing an asset gradually reduces its value through periodic write-downs and requires companies to recognize an expense. Thus the decision whether to amortize an asset in the current period has a direct effect on the company's bottom line. Any corporation that purchases or otherwise acquires intangible assets must answer the question of whether to amortize them. The company's independent auditors then must evaluate those decisions. Interpreting Statement no. 142, however, may be difficult for intangibles with contractual or legal lives. This article describes situations in which it is appropriate to avoid amortization on these intangible assets and offers an approach based on Statement no. 142 and related interpretations CPAs can use to answer the amortization question much more efficiently. PARTICULAR INTANGIBLE ASSETS The key factor in determining whether to amortize an other intangible asset is its useful life. If it is indefinite, the asset is not amortized. Although the question of whether an asset's useful life is definite or indefinite may seem straightforward, certain intangibles--particularly those that are a result of contracted or legally set terms--are difficult to judge. For example, would a contract that provides a buyer rights for five years have an indefinite life? Perhaps, depending on how the contract stacks up against the criteria in Statement no. 142. The useful lives of certain intangible assets will surprise some CPAs given the way Statement no. 142 addresses legal or contractual provisions. …" @default.
• W228980464 created "2016-06-24" @default.
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• W228980464 date "2004-12-01" @default.
• W228980464 modified "2023-09-24" @default.
• W228980464 title "Amortization of Certain Intangible Assets: Companies Should Question the Treatment of Assets with Contractual or Legal Lives" @default.
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