Every intangible asset must have a deemed period of its useful life. According to IAS 38 this can either be finite or indefinite. The judgment between those two is something that is done by the management based on their industry-wide knowledge, experience in the company and any other future perspectives that need to be considered. This is a management estimate and usually there cannot be a right or wrong answer. However, every estimate must be reasonable and reasoned. <\/p>\n
Obviously an asset with finite useful life is amortized. This is now where the second judgmental area kicks in \u2013 the period itself. Will it be 2 or 20 years or something in between? There are a few things that ought to be considered when determining the period: <\/p>\n
–\tExpected usage of the asset by the entity;
\n–\tPublic information on estimates of useful lives of similar assets;
\n–\tStability of the market and changes within;
\n–\tPeriod of control over the asset and legal or similar limits to use the asset;
\n–\tWhether the asset is dependent on other assets, etc.<\/p>\n
When the period is determined, the acquisition cost of the asset is amortized to expense over the determined useful life. <\/p>\n
An asset has an indefinite useful life only when after considering all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows to the entity. Understandably reaching to this result is tempting, but then again, this must be reasoned. Usually, due to the very nature of technology and rapid changes within software production, most intangibles are subject to being obsolete sooner rather than later. Hence the useful lives can never be indefinite obviously. On the other hand, trademarks for an example are assets that have the indefinite essence and thus can be more likely considered as assets with indefinite useful lives. <\/p>\n
So to summarize, it\u2019s up to the management to make required estimates and reason every adjustment made with either industry, asset and\/or some other form of supporting evidence.<\/p>\n","protected":false},"excerpt":{"rendered":"
Every intangible asset must have a deemed period of its useful life. According to IAS 38 this can either be finite or indefinite. The judgment between those two is something that is done by the management based on their industry-wide knowledge, experience in the company and any other future perspectives that need to be considered. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,34,61],"tags":[],"class_list":["post-1842","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-6-intangible-assets","category-1-6-3-amortization"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/1842","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=1842"}],"version-history":[{"count":4,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/1842\/revisions"}],"predecessor-version":[{"id":2610,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/1842\/revisions\/2610"}],"wp:attachment":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=1842"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=1842"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=1842"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}