Intangible Assets & Goodwill

Capitalize or expense

• Purchased intangibles → capitalize. Internally developed → expense (except legal and registration fees).
• Research and development (R&D), start-up, advertising, internally generated goodwill → expense.
• Successful patent defense → capitalize.

Amortize?

• Finite life → shorter of legal and useful life.
• Indefinite life (renewable trademark) and goodwill → no amortization; test at least annually.

Goodwill impairment

• Optional qualitative test (more likely than not).
• Loss = reporting unit carrying amount − fair value, capped at goodwill.
• No reversals. Private companies may amortize over ≤ 10 years.

Software

• For sale: expense until technological feasibility; capitalize until release; amortize by greater of revenue ratio or straight-line.
• Internal use: capitalize the application development stage only.

Crypto assets

Fair value through net income (Accounting Standards Update (ASU) 2023-08).

Exam traps

• Goodwill is tested at the reporting unit level, not asset by asset.
• Indefinite-lived intangibles other than goodwill use a one-step test: impaired if carrying amount exceeds fair value. There's no undiscounted cash flow step.
• Legal fees for an unsuccessful patent defense are expensed, and the patent is probably impaired.
• Research equipment with alternative future uses is capitalized and depreciated (the depreciation is R&D expense); equipment for a single project is expensed immediately.