Limited Life Example

Topics: Economy

Limited-life intangibles should be amortized by systematic charges to expense over their useful life. An intangible asset with an indefinite life is not amortized. When intangibles are created internally, it is often difficult to determine the Aladdin Of any future service potential. TO permit deferral Of these types Of costs would lead to a great deal of subjectivity because management could argue that almost any expense could be capitalized on the basis that it Will increase future benefits.

The cost of purchased intangibles, however, is capitalized because its cost can be objectively verified and reflects its fair value at the date of acquisition.

Companies cannot capitalize self-developed, self-maintained, or self-created goodwill. These expenditures would most likely be reported as selling expenses. Factors to be considered in determining useful life are: The expected use of the asset by the entity. The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate.

Any legal, regulatory, or contractual provisions that may limit useful life. 4_ Any legal, regulatory or contractual provisions that enable renewal or extension of the asset’s legal or contractual life Without substantial cost. The effects Of obsolescence, demand, competition, and Other economic factors. The level Of maintenance expenditure required to obtain the expected future cash flows from the asset. The amount of amortization expensed for a limited-life intangible asset should reflect the pattern in which the asset is consumed or used up, if that pattern can be reliably determined.

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Limited Life Example

If the pattern of production or consumption cannot he determined, the straight-line method to amortization should be used. This trademark is an indefinite life intangible and, therefore, should not be amortized, The $190,000 should be expensed as research and development expense in 2006. The $91 ,OHO is expensed as selling and promotion expense in 2006. The $45,000 Of costs to legally obtain the patent should be capitalized and amortized over the useful or legal life of the patent, whichever is shorter. 10.

Patent Amortization Expense Patents (or Accumulated Amortization-patents) 45,000 1 1 Artistic-related intangible assets involve ownership rights to plays, pictures, photographs, and video and audiovisual material. These ownership rights are protected by copyrights, Contract related intangible assets represent the value to rights that arise trot contractual arrangements. Examples are transpire and licensing agreements, construction permits, broadcast rights, and service or supply contracts.

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Limited Life Example. (2019, Dec 05). Retrieved from

Limited Life Example
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