From the course: Accounting Foundations: Asset Impairment
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Intangible asset impairment test for finite-lived intangibles
From the course: Accounting Foundations: Asset Impairment
Intangible asset impairment test for finite-lived intangibles
- Some intangible assets, such as patents, have legal lives, whereas others, such as trademarks, have indefinite lives. The annual expense associated with the gradual expiration process for finite-lived intangible assets is called amortization. The two-step impairment test for finite-lived intangible assets is exactly like the two-step impairment test used for tangible long-term operating assets, such as a building. When evaluating whether or not an intangible asset has become impaired, the accounting objective is to ensure that the reported amounts of the intangible assets recorded on the books of the company are not overstated. If an intangible asset is determined to be impaired, an impairment loss is recorded on the income statement, and the intangible asset is reduced on the books of the company. To illustrate the impairment accounting process for a finite-lived intangible asset, consider the following example.…
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