Intangible assets with finite useful lives mostly differ from intangible assets with infinite useful lives with respect to accounting treatment of:
A. revaluation.
B. impairment.
C. amortization.
The Correct Answer and Explanation is:
Correct Answer: C. Amortization
Explanation:
The primary difference between intangible assets with finite useful lives and those with indefinite (infinite) useful lives lies in their amortization treatment under accounting standards such as IAS 38 – Intangible Assets.
1. Amortization
Intangible assets with finite useful lives are amortized over their estimated useful life. This means the cost of the asset is systematically allocated as an expense over the period the asset is expected to generate economic benefits. Amortization ensures that the carrying value of the asset on the balance sheet decreases gradually to reflect usage, aging, or obsolescence.
In contrast, intangible assets with indefinite useful lives are not amortized. This is because there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. An example is a trademark or brand name that is expected to provide benefits indefinitely, provided it is maintained properly.
2. Impairment and Revaluation (Why Not B or A)
Both types of intangible assets are subject to impairment reviews, but assets with indefinite useful lives must be tested for impairment annually or when indicators of impairment exist. Finite-lived intangible assets, on the other hand, are tested for impairment only when there is an indication that the asset might be impaired. So while there is a difference in frequency, impairment applies to both, making it not the primary difference.
Regarding revaluation, both finite and indefinite life intangible assets may be revalued (if an active market exists), but this is uncommon and applies under specific conditions. Therefore, revaluation is not the most significant point of difference.
Conclusion:
The amortization treatment is the most fundamental difference. Assets with finite useful lives are amortized, while those with indefinite useful lives are not, making Option C the correct answe
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