Question

Why are some intangible assets not amortized and what is the implication be to the financial statements?

Answer 1

An intangible asset is an identifiable non-monetary asset, without physical substance. An intangible asset with finite life (Finite life: a limited period of benefit to the entity.)should be amortized throughout its life on a systematic basis.

But in case of an intangible asset with an indefinite useful life(Indefinite life: no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.) shall not be amortized.

Implication to F.S,

Rather, such assets are tested for impairment by comparing their recoverable amounts with their carrying amounts once a year, at a minimum. An additional impairment test is required whenever there is an indication that an intangible asset may be impaired.

General Disclosures to F.S

For each class of intangible asset, disclose:

• useful life or amortisation rate
• amortisation method
• gross carrying amount
• accumulated amortisation and impairment losses
• line items in the income statement in which amortisation is included
• reconciliation of the carrying amount at the beginning and the end of the period showing:
  • additions (business combinations separately)
  • assets held for sale
  • retirements and other disposals
  • revaluations
  • impairments
  • reversals of impairments
  • amortisation
  • foreign exchange differences
  • other changes
• basis for determining that an intangible has an indefinite life
• description and carrying amount of individually material intangible assets
• certain special disclosures about intangible assets acquired by way of government grants
• information about intangible assets whose title is restricted
• contractual commitments to acquire intangible assets

Additional disclosures are required about:

• intangible assets carried at revalued amounts
• the amount of research and development expenditure recognised as an expense in the current period