Intangible Assets & Goodwill

Concept

Intangible Assets

Intangibles lack physical substance but provide economic benefit: patents, copyrights, trademarks, franchises, and goodwill. Intangibles with FINITE lives are amortized (like depreciation). Intangibles with INDEFINITE lives are NOT amortized — they are tested for impairment annually.

Example

Amortization

A patent is purchased for $100,000 with a remaining legal life of 20 years but an estimated useful life of 10 years. Amortize over the SHORTER period: $100,000 / 10 = $10,000/year. Entry: Debit Amortization Expense, Credit Patent (or Accumulated Amortization).

Concept

Goodwill

Goodwill = Purchase price of a company − Fair value of net identifiable assets acquired. Goodwill is only recorded in a business combination (acquisition). It is NOT amortized — it is tested for impairment at least annually.

Key Point

Research & Development

Under U.S. GAAP, R&D costs are generally EXPENSED as incurred. They are not capitalized (with narrow exceptions like software development costs after technological feasibility). IFRS allows capitalization of development costs if criteria are met.

Impairment of Long-Term Assets

Back to module →

Ready to test your knowledge?

Practice questions from this module to reinforce what you learned.

Practice Questions