5.3 Intangible Asset Presentation and Disclosure Requirements | DART

5.3.1 Balance Sheet Presentation

ASC 350-30

45-1 At a minimum, all intangible assets shall be aggregated and presented as a separate line item in the statement of financial position. However, that requirement does not preclude presentation of individual intangible assets or classes of intangible assets as separate line items.

In accordance with ASC 350-30-45-1, an entity may elect to aggregate all of its intangible assets and present them as a single line item on the balance sheet or may elect to present individual intangible assets or classes of intangible assets separately. However, SEC registrants must comply with the requirements in paragraphs 15 and 16 of SEC Regulation S-X, Rule 5-02, which state the following regarding presentation of intangible assets:

Intangible assets. State separately each class of such assets which is in excess of five percent of the total assets, along with the basis of determining the respective amounts. Any significant addition or deletion shall be explained in a note.

Accumulated depreciation and amortization of intangible assets. The amount is to be set forth separately in the balance sheet or in a note thereto.

An entity should also appropriately classify intangible assets as either current or noncurrent in accordance with ASC 210. In our experience, presentation of intangible assets as current is infrequent. In addition, it is not appropriate to reclassify a portion of an intangible asset to current (i.e., the portion representing the current year’s amortization) when classifying the remainder of the asset as noncurrent.

5.3.2 Income Statement Presentation

ASC 350-30

45-2 The amortization expense and impairment losses for intangible assets shall be presented in income statement line items within continuing operations as deemed appropriate for each entity.

45-3 Paragraphs 350-30-35-9 through 35-12 and 350-30-35-15 through 35-17 require that an intangible asset be tested for impairment when it is determined that the asset shall no longer be amortized or shall begin to be amortized due to a reassessment of its remaining useful life. An impairment loss resulting from that impairment test shall not be recognized as a change in accounting principle.

Under ASC 350-30-45-2, the amortization expense related to finite-lived intangible assets, as well as any impairment losses related to intangible assets, should be ”presented in income statement line items within continuing operations as deemed appropriate for each entity.” Amortization expense may be separately presented on the face of the income statement or may be included in the income statement line item to which it is related. We believe that if the underlying intangible asset is used in the entity’s operations, the related amortization expense should be included in the determination of operating income. If not reported separately in the income statement, total amortization expense for the period must be disclosed in the notes to the financial statements.

The SEC staff has emphasized that in determining the appropriate income statement presentation of intangible asset amortization expense and impairment losses, entities should consider both (1) cost of sales and (2) selling, general, and administrative expenses. Accordingly, classification under a general caption, such as "amortization expense," even if within continuing operations, may not be deemed appropriate.

Factors for entities to consider in determining the appropriate income statement classification of intangible asset amortization expense should include, but are not limited to, the function of the intangible asset and the requirements of SEC Regulation S-X, Rule 5-03. For example, if the entity acquires a patent necessary to produce goods for sale, the amortization expense related to the patent would generally be presented as a component of cost of sales or a similar expense category.

Regarding the appropriate income statement classification of amortization expense for intangible assets associated with acquired technology marketed to others, the SEC staff refers to the guidance in ASC 985-20-45-1, which addresses the amortization expense presentation of capitalized software costs. ASC 985-20-45-1 indicates that “[b]ecause amortization expense of capitalized software costs relates to a software product that is marketed to others, the expense shall be charged to cost of sales or a similar expense category.”

5.3.3 Disclosures in the Period of Acquisition

ASC 350-30

50-1 For intangible assets acquired either individually or as part of a group of assets (in either an asset acquisition, a business combination, or an acquisition by a not-for-profit entity), all of the following information shall be disclosed in the notes to financial statements in the period of acquisition:

For intangible assets subject to amortization, all of the following:
1. The total amount assigned and the amount assigned to any major intangible asset class
2. The amount of any significant residual value, in total and by major intangible asset class
3. The weighted-average amortization period, in total and by major intangible asset class.
For intangible assets not subject to amortization, the total amount assigned and the amount assigned to any major intangible asset class.
The amount of research and development assets acquired in a transaction other than a business combination or an acquisition by a not-for-profit entity and written off in the period and the line item in the income statement in which the amounts written off are aggregated.
For intangible assets with renewal or extension terms, the weighted-average period before the next renewal or extension (both explicit and implicit), by major intangible asset class.

This information also shall be disclosed separately for each material business combination or acquisition by a not-for-profit entity or in the aggregate for individually immaterial business combinations or acquisitions by a not-for-profit entity that are material collectively if the aggregate fair values of intangible assets acquired, other than goodwill, are significant.

Pending Content (Transition Guidance: ASC 805-60-65-1)

50-1 For intangible assets acquired either individually or as part of a group of assets (in asset acquisition, a business combination, acquisition by a not-for-profit entity, or a joint venture formation), all of the following information shall be disclosed in the notes to financial statements in the period of acquisition:

For intangible assets subject to amortization, all of the following:
1. The total amount assigned and the amount assigned to any major intangible asset class
2. The amount of any significant residual value, in total and by major intangible asset class
3. The weighted-average amortization period, in total and by major intangible asset class.
For intangible assets not subject to amortization, the total amount assigned and the amount assigned to any major intangible asset class.
The amount of research and development assets acquired in a transaction other than a business combination, an acquisition by a not-for-profit entity, or a joint venture formation and written off in the period and the line item in the income statement in which the amounts written off are aggregated.

This information also shall be disclosed separately for each material business combination or acquisition by a not-for-profit entity or in the aggregate for individually immaterial business combinations or acquisitions by a not-for-profit entity that are material collectively if the aggregate fair values of intangible assets acquired, other than goodwill, are significant.

5.3.4 Disclosures for Each Period for Which a Statement of Financial Position Is Presented

ASC 350-30

50-2 The following information shall be disclosed in the financial statements or the notes to financial statements for each period for which a statement of financial position is presented:

For intangible assets subject to amortization, all of the following:
1. The gross carrying amount and accumulated amortization, in total and by major intangible asset class
2. The aggregate amortization expense for the period
3. The estimated aggregate amortization expense for each of the five succeeding fiscal years.
For intangible assets not subject to amortization, the total carrying amount and the carrying amount for each major intangible asset class
The entity's accounting policy on the treatment of costs incurred to renew or extend the term of a recognized intangible asset
For intangible assets that have been renewed or extended in the period for which a statement of financial position is presented, both of the following:
1. For entities that capitalize renewal or extension costs, the total amount of costs incurred in the period to renew or extend the term of a recognized intangible asset, by major intangible asset class
2. The weighted-average period before the next renewal or extension (both explicit and implicit), by major intangible asset class.

Example 13 (see paragraph 350-30-55-39) illustrates these disclosure requirements.

5.3.5 Disclosures Related to Impairment Losses

ASC 350-30

50-3 For each impairment loss recognized related to an intangible asset, all of the following information shall be disclosed in the notes to financial statements that include the period in which the impairment loss is recognized:

A description of the impaired intangible asset and the facts and circumstances leading to the impairment
The amount of the impairment loss and the method for determining fair value
The caption in the income statement or the statement of activities in which the impairment loss is aggregated
If applicable, the segment in which the impaired intangible asset is reported under Topic 280.

50-3A A nonpublic entity is not required to disclose the quantitative information about significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy required by paragraph 820-10-50-2(bbb) that relate to the financial accounting and reporting for an indefinite-lived intangible asset after its initial recognition.

5.3.6 Disclosures About Fair Value Measurements

In accordance with ASC 350-30-50-3(b), an entity that recognizes an impairment loss must disclose “[t]he amount of the impairment loss and the method for determining fair value.” Accordingly, an entity must provide the fair value measurement disclosures required by ASC 820-10-50. The level of disclosure required by ASC 820-10-50 varies depending on whether the fair value measurement is considered recurring or nonrecurring; however, we believe that when the disclosures are about impairment loss, the fair value measurement should be considered nonrecurring (see Section 5.2.6 for more information).

ASC 350-30-50-3A also includes an exception from ASC 820’s disclosure requirements for nonpublic entities, stating that such entities are “not required to disclose the quantitative information about significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy required by paragraph 820-10-50-2(bbb) that relate to the financial accounting and reporting for an indefinite-lived intangible asset after its initial recognition.”

5.3.7 Renewal or Extension of an Intangible Asset’s Legal or Contractual Life

ASC 350-30

50-4 For a recognized intangible asset, an entity shall disclose information that enables users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity's intent or ability (or both intent and ability) to renew or extend the arrangement.

An entity is required to disclose information about its intent and ability to renew or extend an intangible asset’s legal or contractual life. See Section 5.3.9 for further discussion of changes in the expected likelihood of an intangible asset’s renewal or extension.

5.3.8 Certain Significant Estimates

ASC 350-30

50-5 For guidance on determining whether disclosures about an estimate of the useful life of an intangible asset are required under paragraph 275-10-50-8, see paragraph 275-10-50-15A.

ASC 275-10-50 requires disclosure of certain risks and uncertainties. For example, ASC 275-10-50-1 requires disclosures about the “[u]se of estimates in the preparation of financial statements” and “[c]ertain significant estimates.” Similarly, ASC 275-10-50-8 states the following:

Disclosure regarding an estimate shall be made when known information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that both of the following criteria are met:

It is at least reasonably possible that the estimate of the effect on the financial statements of a condition, situation, or set of circumstances that existed at the date of the financial statements will change in the near term due to one or more future confirming events.
The effect of the change would be material to the financial statements.

Therefore, even if an impairment loss was not recognized in the reporting period, disclosures may be required if it is reasonably possible that one or more reporting units might experience an impairment loss in the future (e.g., the fair value of an indefinite-lived intangible asset was only marginally higher than its carrying amount as of the date of the last quantitative impairment test, and it is at least reasonably possible that its fair value may continue to decline so a material impairment may be recognized in a future period).

5.3.9 A Change in the Expected Likelihood of Renewal or Extension of an Intangible Asset

ASC 275-10-50-15A states the following:

In determining whether disclosure about an estimate of the useful life of an intangible asset is required under paragraph 275-10-50-8, the criterion in item (b) of that paragraph shall be considered met if the effect of either of the following would be material to the financial statements, either individually or in aggregate by major intangible asset class:

A change in the useful life of an intangible
A change in the expected likelihood of renewal or extension of an intangible asset.

Therefore, an entity would meet the requirement in ASC 275-10-50-8 if either condition above would be material to the financial statements.

5.3.10 Illustration of Disclosure Requirements

ASC 350-30

Example 13: Illustration of Disclosure Requirements

55-39 This Example illustrates the disclosure requirements of paragraphs 350-30-50-1 through 50-3.

55-40 In accordance with paragraph 350-30-50-2, the following disclosures would be made by Theta Entity in its December 31, 20X3 financial statements relating to acquired intangible assets. Theta Entity did not incur costs to renew or extend the term of acquired intangible assets during the period ending December 31, 20X3.

5.3 Presentation and Disclosure Requirements for Intangible Assets