How must intangible assets be treated under GAAP?

How must intangible assets be treated under GAAP?

• A. They must always be expensed immediately
• B. They must be included as liabilities
• C. They must be amortized over their useful life unless they have indefinite lives
• D. They are not subject to any amortization

Answer: (C)

Intangible assets under GAAP must be amortized over their useful life unless they have indefinite lives. This treatment ensures that the cost of the intangible assets is systematically allocated over the period that they contribute to the company's revenue. Amortization reflects the consumption or usage of the asset's economic benefits over time. For intangible assets with a finite useful life, companies determine the amortization period based on the expected useful life, and the associated expense is recorded in the financial statements. This helps to provide a more accurate representation of the asset's value and its impact on the company's financial performance over time. Intangible assets with indefinite lives, such as certain trademarks or goodwill, are not subject to amortization but must still be tested annually for impairment. This means that their value is assessed each year to ensure it hasn't declined below its carrying amount, thus preserving the integrity of the financial statements. This systematic approach not only facilitates compliance with accounting standards but also enhances comparability and transparency in financial reporting.

Intangible assets under GAAP must be amortized over their useful life unless they have indefinite lives. This treatment ensures that the cost of the intangible assets is systematically allocated over the period that they contribute to the company's revenue. Amortization reflects the consumption or usage of the asset's economic benefits over time.

For intangible assets with a finite useful life, companies determine the amortization period based on the expected useful life, and the associated expense is recorded in the financial statements. This helps to provide a more accurate representation of the asset's value and its impact on the company's financial performance over time.

Intangible assets with indefinite lives, such as certain trademarks or goodwill, are not subject to amortization but must still be tested annually for impairment. This means that their value is assessed each year to ensure it hasn't declined below its carrying amount, thus preserving the integrity of the financial statements.

This systematic approach not only facilitates compliance with accounting standards but also enhances comparability and transparency in financial reporting.