Page 15 - Ebook Financial Accounting 3

1.4.2 Useful Life of Intangible Assets

Definite Life

Useful Life

Indefinite Life

Figure 1.5

a. Finite Life
Amortise on a systematic basis; straight-line method to be used unless another

method reflects pattern of consumption more reliably. Residual value is zero unless
there is a firm commitment by a 3rd party to buy the asset at the end of the life or there

is an active market, and it is probable such a market will exist at the end of the asset’s
life. Annual review of useful life and changes are considered as change in accounting

estimate.

Amortisation begins when the asset is available for use. Intangible asset that has
a legal life and there are provisions for renewal, the potential renewals are only

considered in useful life assessment if renewal costs are not significant.

b. Indefinite Life

Intangibles with indefinite lives are not amortised but tested for impairment
annually or whenever there is an indication of impairment. Useful life of indefinite life

of intangible are reassessed annually. Change from indefinite life to finite life is
accounted for as change in accounting estimate. A change from indefinite to finite life

is an indication of impairment.

Example 1.1:

Astroid Bhd has acquired a broadcasting right that is renewable every 5 years. The renewal
fees are minimal, and the company has renewed it twice before and intends to continue

renewing the licence indefinitely. The technology in broadcasting is not expected to be
replaced. Useful life of the licence can be taken to be indefinite.

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