4.1 Overall Accounting for Intangible Assets
ASC 350-30
05-1 This Subtopic addresses
financial accounting and reporting for intangible assets
(other than goodwill) acquired individually or with a group
of other assets and for the cost of developing, maintaining,
or restoring internally generated intangible assets.
However, it does not discuss the recognition and initial
measurement of intangible assets acquired in a business
combination, acquired in an acquisition by a not-for-profit
entity, or recognized by a joint venture upon formation.
This Subtopic also addresses financial accounting and
reporting for intangible assets after their acquisition,
including intangible assets acquired in a business
combination, in an acquisition by a not-for-profit entity,
or by a joint venture upon formation.
05-2 Guidance on the initial
recognition and measurement of intangible assets acquired in
a business combination or in an acquisition by a
not-for-profit entity is provided in Subtopics 805-20 and
958-805, respectively. Guidance on the initial recognition
and measurement of intangible assets by a joint venture upon
formation is provided in Subtopic 805-60.
05-3
Intangible assets acquired individually or with a group of
other assets should be recognized as assets in accordance
with Section 350-30-25. Costs of developing internally
generated intangible assets should be accounted for in
accordance with paragraph 350-30-25-3.
05-4
The accounting for an intangible asset after acquisition
depends on its useful life. If that life is indefinite, the
intangible asset should not be amortized but should be
tested for impairment at least annually in accordance with
paragraphs 350-30-35-15 through 35-20. If that life is
finite, the intangible asset should be amortized in
accordance with paragraphs 350-30-35-6 through 35-13 and
tested for impairment under the guidance for long-lived
assets in Subtopic 360-10.
05-5
This Subtopic also includes guidance on the presentation of
intangible assets in the balance sheet, presentation of
amortization expense and impairment losses for intangible
assets in the income statement, and disclosure of
information on intangible assets in the notes to financial
statements.
This chapter addresses the accounting for intangible assets other
than goodwill and digital assets after their initial recognition. Although goodwill
is an intangible asset, the meaning of the term “intangible assets” in this chapter
is the same as in the ASC master glossary, which defines intangible assets as
“assets (not including financial assets) that lack physical substance” and indicates
that the term “is used to refer to intangible assets other than goodwill.”
Intangible assets are initially recognized on an entity’s balance sheet in the
following ways:
- In a transaction accounted for as an asset acquisition (see Section 4.1.2).
- In a transaction accounted for as a business combination, upon the formation of a joint venture (once an entity adopts the guidance in ASU 2023-05), or in an acquisition by an NFP. Further, the recognition and measurement principles used for business combinations are also applied in the separate financial statements of an entity that has elected to apply pushdown accounting or an entity that adopts fresh-start reporting. (see Section 4.1.3).
Once an intangible asset is recognized, its useful life to the
entity must be determined. The useful life of an intangible asset is either finite
or indefinite. A finite-lived intangible asset is subject to amortization over its
useful life to the entity and is subject to impairment testing when a triggering
event occurs in accordance with ASC 360-10. By contrast, an indefinite-lived
intangible asset is not subject to amortization and is subject to impairment testing
at least annually in accordance with ASC 350-30.
Connecting the Dots
Digital assets typically meet the definition of an intangible asset because
they lack physical substance and would generally be accounted for under ASC
350 in the absence of other applicable GAAP. Further, because there is no
limit on a digital asset’s foreseeable useful life, it is generally
classified as an indefinite-lived intangible asset in accordance with ASC
350. Digital assets generally are not considered financial assets because
they do not represent cash, an ownership interest in an entity, or a right
or obligation to receive cash or another financial instrument. However,
certain digital assets (e.g., certain stablecoins) may meet this definition
if they are issued by a party that allows the holder to redeem them for
cash. See Deloitte’s Roadmap Digital
Assets for more information about digital asset
intangibles.
The decision tree below outlines the accounting for intangible assets after initial
recognition.
4.1.1 Scope
ASC 350-30
15-1 This Subtopic follows
the same Scope and Scope Exceptions as outlined in the
Overall Subtopic, see Section 350-10-15, with specific
transaction qualifications noted below.
15-2 While goodwill is an
intangible asset, the term intangible asset is used in
this Subtopic to refer to an intangible asset other than
goodwill.
15-3 The guidance in this
Subtopic applies to the following:
- Intangible assets acquired individually or with a group of other assets (but not the recognition and initial measurement of those acquired in a business combination, acquired in an acquisition by a not-for-profit entity, or recognized by a joint venture upon formation)
- Intangible assets (other than goodwill) that an entity recognizes in accordance with Subtopic 805-20, 805-60, or 958-805 after they have been initially recognized and measured, except for those identified in paragraph 350-30-15-4
- Subparagraph not used.
- Costs of internally developing identifiable intangible assets that an entity recognizes as assets.
The disclosure requirements of
paragraphs 350-30-50-1 through 50-3 also apply to
capitalized software costs.
15-4 The guidance in this
Subtopic does not apply to the following:
- Subparagraph not used.
- Subparagraph superseded by Accounting Standards Update No. 2010-07.
- Except for certain disclosure requirements as noted in the preceding paragraph, capitalized software costs
- Intangible assets recognized for acquired insurance contracts under the requirements of Subtopic 944-805.
Pending Content (Transition Guidance: ASC
944-40-65-2)
15-4 The guidance in this Subtopic does
not apply to the following:
- Subparagraph not used.
- Subparagraph superseded by Accounting Standards Update No. 2010-07.
- Except for certain disclosure requirements as noted in paragraph 350-30-15-3, capitalized software costs
- Except for disclosures required by paragraph 944-805-50-1 (however, an insurance entity need not duplicate disclosures that also are required by paragraphs 944-30-50-2A through 50-2B), intangible assets recognized for acquired insurance contracts under the requirements of Subtopic 944-805.
Pending Content (Transition Guidance: ASC
350-60-65-1)
15-4 The guidance in this Subtopic does
not apply to the following:
- Subparagraph not used.
- Subparagraph superseded by Accounting Standards Update No. 2010-07.
- Except for certain disclosure requirements as noted in paragraph 350-30-15-3, capitalized software costs
- Except for disclosures required by paragraph 944-805-50-1 (however, an insurance entity need not duplicate disclosures that also are required by paragraphs 944-30-50-2A through 50-2B), intangible assets recognized for acquired insurance contracts under the requirements of Subtopic 944-805
- Crypto assets accounted for in accordance with Subtopic 350-60, except for recognition and initial measurement of crypto assets.
Other Considerations
15-5 This Subtopic does not
address the identification of market participants,
market participant assumptions, or valuation issues
associated with defensive intangible assets.
The guidance in ASC 350-30 applies to all entities, including mutual entities and
NFPs.
4.1.2 Intangible Assets Recognized and Measured in an Asset Acquisition in Accordance With ASC 805-50
ASC 350-30
25-1 An intangible asset
that is acquired either individually or with a group of
other assets shall be recognized.
25-2 As indicated in paragraph
805-50-30-3, the cost of a group of assets acquired in a
transaction other than a business combination, an
acquisition by a not-for-profit entity, or a joint
venture formation shall be allocated to the individual
assets acquired based on their relative fair values and
shall not give rise to goodwill.
25-4 Intangible assets that are
acquired individually or with a group of assets in a
transaction other than a business combination, an
acquisition by a not-for-profit entity, or a joint
venture upon formation may meet asset recognition
criteria in FASB Concepts Statement No. 5,
Recognition and Measurement in Financial
Statements of Business Enterprises, even though
they do not meet either the contractual-legal criterion
or the separability criterion (for example,
specially-trained employees or a unique manufacturing
process related to an acquired manufacturing plant).
Such transactions commonly are bargained exchange
transactions that are conducted at arm’s length, which
provides reliable evidence about the existence and fair
value of those assets. Thus, those assets shall be
recognized as intangible assets.
Pending Content (Transition Guidance: ASC
105-10-65-9)
25-4 Intangible assets that are acquired
individually or with a group of assets in a
transaction other than a business combination, an
acquisition by a not-for-profit entity, or a joint
venture upon formation may qualify for recognition
even though they do not meet either the
contractual-legal criterion or the separability
criterion for being an identifiable asset (for
example, specially-trained employees or a unique
manufacturing process related to an acquired
manufacturing plant). Such transactions commonly
are bargained exchange transactions that are
conducted at arm’s length, which provides reliable
evidence about the existence and fair value of
those assets. Thus, those assets shall be
recognized as intangible assets.
30-1 An intangible asset
that is acquired either individually or with a group of
other assets (but not those acquired in a business
combination) shall be initially measured based on the
guidance included in paragraphs 805-50-15-3 and
805-50-30-1 through 30-4.
An intangible asset that is acquired either individually or with
a group of other assets in an asset acquisition (i.e., a transaction that is not
a business combination, an acquisition by an NFP, or a joint venture formation)
is initially recognized and measured in accordance with ASC 805-50. As indicated
in ASC 350-30-25-2, the cost of the acquisition generally is “allocated to the
individual assets acquired based on their relative fair values.” See Appendix C of Deloitte’s
Roadmap Business
Combinations for more information about the initial
recognition and measurement of intangible assets acquired in an asset
acquisition. Also, as discussed in Section C.3.4 of that Roadmap, with the
exception of in-process research and development (IPR&D), there is a lower
threshold for recognizing intangible assets in an asset acquisition than in a
business combination.
4.1.3 Intangible Assets Recognized and Measured in Accordance With ASC 805-20
ASC 350-30
05-2 Guidance on the initial
recognition and measurement of intangible assets
acquired in a business combination or in an acquisition
by a not-for-profit entity is provided in Subtopics
805-20 and 958-805, respectively. Guidance on the
initial recognition and measurement of intangible assets
by a joint venture upon formation is provided in
Subtopic 805-60.
An intangible asset acquired in a business combination is
initially recognized and measured in accordance with ASC 805-20. To qualify for
recognition in a business combination, an intangible asset must be
“identifiable.” That is, the asset must arise from contractual rights or be
separable from the entity. Thus, the threshold for recognition is higher in a
business combination than in an asset acquisition. Intangible assets acquired in
a business combination are generally measured at fair value, with limited
exceptions. See Section
4.10 of Deloitte’s Roadmap Business Combinations for more
information.
An intangible asset acquired by an NFP is also subject to the recognition and
measurement requirements in ASC 805-20. However, ASC 958-805 includes certain
additional exceptions to the recognition principle in ASC 805-20 that
specifically apply to NFPs. ASC 958-805-25-21 through 25-26 discuss three such
exceptions: donor relationships, collections, and conditional promises to
give.
Changing Lanes
In August 2023, the FASB issued ASU 2023-05, under
which an entity that qualifies as either a joint venture or a corporate
joint venture, as defined in the ASC master glossary, is required to
apply a new basis of accounting upon the formation of the joint venture.
Specifically, the ASU stipulates that a joint venture or a corporate
joint venture (collectively, “joint ventures”) must initially measure
its assets and liabilities at fair value on the formation date. The
amendments in ASU 2023-05 apply to the formation of all joint
ventures.
Upon adoption of ASU 2023-05, a joint venture (regardless of whether it
meets the definition of a business in ASC 805-10) is required to apply
ASC 805-20 in measuring its identifiable assets and liabilities
recognized as of the formation date, including its intangible
assets.
An entity may also recognize intangible assets in its separate financial
statements by applying pushdown accounting in accordance with ASC 805-50 (see
Appendix
A of Deloitte’s Roadmap Business Combinations) or
when adopting fresh-start reporting in accordance with ASC 852. The initial
accounting for such intangible assets is also subject to the recognition and
measurement requirements in ASC 805-20 that apply to business combinations.
4.1.4 Internally Generated Intangible Assets
ASC 350-30
25-3 Costs of internally
developing, maintaining, or restoring intangible assets
that are not specifically identifiable, that have
indeterminate lives, or that are inherent in a
continuing business or nonprofit activity and related to
an entity as a whole, shall be recognized as an expense
when incurred.
Unless capitalization is specifically permitted under U.S. GAAP (e.g.,
capitalization of certain costs incurred to develop internal-use software in
accordance with ASC 350-40), the costs of internally developing intangible
assets should be expensed as incurred.
Changing Lanes
In October 2024, the FASB issued a proposed ASU
that would amend certain aspects of the accounting for and disclosure of
software costs under ASC 350-40. Rather than revising the guidance on
this topic in its entirety, the Board is proposing targeted improvements
to address specific issues raised by stakeholders. For more information
about the proposed ASU, see Deloitte’s November 5, 2024, Heads
Up.