Finite life amortised; indefinite not; development is a policy choice; goodwill only when bought

Assets you cannot kick

An intangible asset is an identifiable non-monetary asset without physical substance — a patent, a trademark, a licence, a franchise, a customer list bought from someone else. It is recorded at cost like any other asset; the questions are whether and how it is amortised, and which spending on creating one is an asset at all.

A patent: finite life

Bramble Lane Outfitters Ltd. buys a patent on a pack-frame design for 60,000 cash. Its legal life is 15 years, but the company expects the design to be superseded in 6. A finite-life intangible is amortised straight-line, normally with no residual value, over the shorter of its legal life and its useful life:

$$\text{Annual amortization}=\frac{60,000}{6}=10,000$$

Amortising over 15 years — 4,000 a year — would leave 36,000 on the books for a design nobody uses. The credit may go straight to the Patent account (the common practice for intangibles) or to an Accumulated Amortization – Patent contra; both are accepted, and the case will say if it cares.

A trademark: indefinite life

Bramble Lane also buys a trademark for 25,000. Trademarks are renewable indefinitely at trivial cost, and this one has no foreseeable end — an indefinite life. It is not amortised. Instead it is tested for impairment when an indicator appears (the same trigger logic as L11.7), and if the life later becomes finite — the brand is to be retired in four years — amortisation starts then. “Indefinite” is not “infinite”; it means no limit can currently be foreseen.

Research and development: ASPE’s choice

Spending to create an intangible is split in two. Research — the search for new knowledge, before it is clear anything will come of it — is always expensed: Bramble Lane’s 15,000 of research into a new binding is Dr Research Expense. Development — turning the result into a product — can be capitalised only when all six criteria are met: technical feasibility, intention to complete, ability to use or sell, a market or use, adequate resources, and reliable measurement of the cost. Under IFRS, once they are met, capitalisation is required. Under ASPE s.3064 it is an accounting policy choice: a company may capitalise qualifying development costs or expense them all, and must apply the choice consistently. Bramble Lane’s 40,000 of qualifying development is therefore either an asset (Development Costs, amortised once the binding sells) or an expense — the owner decides, and the bank reads the note. Internally generated brands, customer lists and the like are never assets, whatever they cost to build.

Goodwill: only when a business is bought

Bramble Lane buys a rival shop for 300,000 cash. The shop’s identifiable net assets — inventory, fixtures, the lease, less its payables — are worth 245,000 at fair value. The extra 55,000 paid for its location, its reputation and its regulars is goodwill:

$$\text{Goodwill}=\text{Purchase price}-\text{Fair value of identifiable net assets}=300,000-245,000=55,000$$

Identifiable Net Assets (by account)     245,000
Goodwill                                  55,000
    Cash                                          300,000

Three rules. Goodwill is recorded only when purchased — Bramble Lane’s own twenty-year reputation is worth a great deal and is on no balance sheet, because no transaction ever measured it. Under current ASPE goodwill is not amortised; it is tested for impairment when an indicator exists, at the level of the reporting unit, and a goodwill impairment is never reversed. (The AcSB issued an exposure draft in October 2025 that would let private companies choose to amortise goodwill, proposed for years beginning in 2029; until it is finalised, the rule is the one above — and a 191 appendix will state the rule it wants.) Intangibles are shown as one line on the balance sheet, goodwill as another, both below property, plant and equipment.