Chapter 4 — Subsequent Accounting for Intangible Assets

4.5 Reevaluating the Useful Life of an Intangible Asset

ASC 350-30

35-9 An entity shall evaluate the remaining useful life of an intangible asset that is being amortized each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of an intangible asset's remaining useful life is changed, the remaining carrying amount of the intangible asset shall be amortized prospectively over that revised remaining useful life.

35-10 An intangible asset that initially is deemed to have a finite useful life shall cease being amortized if it is subsequently determined to have an indefinite useful life, for example, due to a change in legal requirements. If an intangible asset that is being amortized is subsequently determined to have an indefinite useful life, the asset shall be tested for impairment in accordance with paragraphs 350-30-35-18 through 35-20.

35-11 Any resulting impairment loss would be due to a change in accounting estimate and thus, consistent with Topic 250, shall be recognized as a change in estimate, not as a change in accounting principle. Therefore, that loss shall be presented in the income statement in the same manner as other impairment losses.

35-12 That intangible asset shall no longer be amortized and shall be accounted for in the same manner as other intangible assets that are not subject to amortization.

35-13 When an intangible asset’s useful life is no longer considered to be indefinite, such as when unanticipated competition enters the market, the intangible asset must be amortized over the remaining period that it is expected to contribute to cash flows.

35-16 An entity shall evaluate the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life.

35-17 If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, the asset shall be tested for impairment in accordance with paragraphs 350-30-35-18 through 35-19. That intangible asset shall then be amortized prospectively over its estimated remaining useful life and accounted for in the same manner as other intangible assets that are subject to amortization.

An entity must reevaluate the estimated useful lives of its intangible assets in each reporting period. Such a reevaluation should take into account not only the period over which finite-lived intangible assets are being amortized but also whether the assets should continue to be considered indefinite-lived (or finite-lived). If a change occurs, the entity should be able to demonstrate what led to the change and appropriately document its considerations and conclusions. Upon a change in estimated useful life, the entity should also consider whether to perform an impairment test, as described in more detail below. A change in the estimated useful life of an asset, as well as any impairment loss recognized in connection with that change, represents a change in accounting estimate in accordance with ASC 250 (unless there was an error in the initial accounting, in which case the error would be corrected retrospectively in accordance with ASC 250). The table below summarizes the process.

Initial Useful-Life Determination	Revised Useful-Life Determination	Impairment Test Upon the Change in Useful Life	Subsequent Amortization	Subsequent Impairment Testing
Finite-lived	Finite-lived	Typically, the useful life of a finite-lived intangible asset is reduced, not increased. Consider whether the revision is a triggering event requiring that the asset (or the asset group to which it belongs) be tested for recoverability under ASC 360-10.	Amortize the remaining carrying amount of the asset (after decreasing the asset for any impairment loss) prospectively over the revised useful life.	Test for impairment when a triggering event occurs under ASC 360-10.
Indefinite-lived	Finite-lived	Before reclassifying the asset to finite-lived, test for impairment in accordance with ASC 350-30.	Amortize the remaining carrying amount of the asset (after reducing the asset for any impairment loss) prospectively over the asset’s revised useful life. Subsequently, test for impairment when a triggering event occurs under ASC 360-10.	Test for impairment when a triggering event occurs under ASC 360-10.
Finite-lived	Indefinite-lived	In the unusual event an intangible asset become indefinite-lived, test for impairment under ASC 350-30.	Cease amortizing the asset.	Test for impairment at least annually in accordance with ASC 350-30.

4.5.1 Change in Period of Amortization

In accordance with ASC 350-30-35-9, “[a]n entity shall evaluate the remaining useful life of an intangible asset that is being amortized each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization.” However, before the entity changes the useful life of a finite-lived intangible asset, it should first consider whether the change represents a triggering event requiring that the asset be tested for impairment in accordance with ASC 360-10. Because finite-lived intangible assets are tested for impairment at the asset-group level, the entity will need to use judgment in determining whether a change in the useful life of the asset is significant in such a way that it represents a triggering event for the asset group. See Sections 2.2 and 2.7 of Deloitte’s Roadmap Impairments and Disposals of Long-Lived Assets and Discontinued Operations for more information.

In our experience, it is not uncommon for the useful life of a finite-lived intangible asset to be reduced, but it is uncommon for the useful life of an intangible asset to be extended. In either case, the entity should be able to demonstrate what led to the change and appropriately document its considerations and conclusions.

A change in the useful life of an intangible asset, as well as any impairment loss recognized when the change occurs, should be accounted for as a change in estimate in accordance with ASC 250. Any impairment loss would be presented in the income statement in the same manner as other impairment losses. In addition, after reducing the carrying amount of the asset for any impairment loss, an entity would apply the guidance in ASC 350-30-35-9, which states that “[i]f the estimate of an intangible asset's remaining useful life is changed, the remaining carrying amount of the intangible asset shall be amortized prospectively over that revised remaining useful life.”

Example 4-5

Company A recognizes a technology intangible asset and initially determines the asset’s useful life to be seven years. However, when the asset has five years remaining on its useful life, A then believes, because of unexpected technological advances and in an effort to keep pace with its competitors, that the technology will have to be replaced in three years. In that case, the change in the determination of the asset’s useful life would be a change in estimate in accordance with ASC 250. Company A would first consider whether the change in useful life represents a triggering event. If so, A would test the asset for impairment in accordance with ASC 360-10 and would recognize any necessary impairment loss. The remaining carrying amount of the technology intangible asset would then be amortized (after it is reduced for any impairment loss and provided that it has no residual value) prospectively over its revised useful life of three years.

4.5.2 Change in Estimated Useful Life From Indefinite-Lived to Finite-Lived

In each reporting period, an entity must reevaluate whether the useful life of its indefinite-lived intangible assets should no longer be considered indefinite. ASC 350-30-35-13 states that “[w]hen an intangible asset’s useful life is no longer considered to be indefinite, such as when unanticipated competition enters the market, the intangible asset must be amortized over the remaining period that it is expected to contribute to cash flows.”

However, before beginning amortization of the intangible asset, the entity must first test the asset for impairment in accordance with ASC 350-30-35-18 through 35-20. While an entity may elect to perform an optional qualitative impairment assessment (see Section 4.4.3), circumstances and events causing the useful life of the intangible asset to change from indefinite to finite (e.g., because of a decrease in actual or estimated future cash flows, earnings, or revenue) may have an impact on the significant inputs or assumptions used in determining the fair value. If the extent to which these negative events or circumstances causes an entity to conclude that the asset is more likely than not to be impaired under the qualitative assessment, the entity must then calculate the fair value of the asset and compare it with the asset’s carrying amount to determine the amount of an impairment loss to be recognized, if any.

A change in the useful life of an intangible asset and any impairment loss recognized upon the change should be accounted for as changes in estimate in accordance with ASC 250. Any impairment loss would be presented in the income statement in the same manner as other impairment losses. In addition, after reducing the carrying amount of the intangible asset for any impairment loss, an entity would apply the guidance in ASC 350-30-35-17 to amortize the asset “prospectively over its estimated remaining useful life” and account for it “in the same manner as other intangible assets that are subject to amortization.” Subsequently, like other finite-lived intangible assets, the asset would be tested for impairment when a triggering event occurs in accordance with ASC 360-10.

Example 9 in ASC 350-30-55-26 through 55-28 illustrates a scenario in which an intangible asset’s useful life changes from indefinite to finite.

ASC 350-30

Example 9: Acquired Trademark No Longer Deemed to Have an Indefinite Life

55-26 This Example illustrates the guidance in paragraphs 350-30-35-1 through 35-20.

55-27 A trademark for a line of automobiles was acquired several years ago in an acquisition of an automobile entity. The line of automobiles had been produced by the acquired entity for 35 years with numerous new models developed under the trademark. At the acquisition date, the acquiring entity expected to continue to produce that line of automobiles, and an analysis of various economic factors indicated there was no limit to the period of time the trademark would contribute to cash flows. Because cash flows were expected to continue indefinitely, the trademark was not amortized. Management recently decided to phase out production of that automobile line over the next four years.

55-28 Because the useful life of that acquired trademark is no longer deemed to be indefinite, the trademark would be tested for impairment in accordance with paragraphs 350-30-35-18 through 35-20. The carrying amount of the trademark after adjustment, if any, would then be amortized over its remaining four-year useful life following the pattern in which the expected benefits will be consumed or otherwise used up. Because the trademark will be subject to amortization, in the future it would be reviewed for impairment under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10.

4.5.3 Change in Estimated Useful Life From Finite-Lived to Indefinite-Lived

In each reporting period, an entity should reevaluate whether the useful lives of its finite-lived intangible assets should no longer be considered finite. ASC 350-30-35-10 states that “[a]n intangible asset that initially is deemed to have a finite useful life shall cease being amortized if it is subsequently determined to have an indefinite useful life, for example, due to a change in legal requirements.” Therefore, the guidance acknowledges that it is possible for an intangible asset that was initially classified as finite-lived to be subsequently determined to be indefinite-lived because of changes in facts and circumstances after the asset’s initial recognition. However, in our experience, it is unusual for the useful life of an intangible asset to be revised from finite-lived to indefinite-lived. In the unlikely event that this does occur, the entity should be able to demonstrate what led to the change and appropriately document its considerations and conclusions.

ASC 350-30-35-10 goes on to say that “[i]f an intangible asset that is being amortized is subsequently determined to have an indefinite useful life, the asset shall be tested for impairment in accordance with paragraphs 350-30-35-18 through 35-20.” After the carrying amount of the asset is reduced for any impairment loss, the remaining carrying amount of the intangible asset should “no longer be amortized and shall be accounted for in the same manner as other intangible assets that are not subject to amortization” in accordance with ASC 350-30-35-12. Thus, the carrying amount of the asset is no longer amortized but is tested for impairment at least annually in accordance with ASC 350-30.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.