CERTYNEX IFRS ACADEMY

The finance director of a toy manufacturer argues that a patent amortised over its finite useful life never needs to be considered for impairment, since amortisation is enough to reflect its loss in value. What should he be told?

He is right: only intangible assets with an indefinite useful life are subject to an impairment analysis.

He is right, but only if the amortisation method used is diminishing balance.

He is wrong: IAS 38 requires the patent to be written down to 50% of its cost as soon as its sales decline.

He is wrong: to determine whether the patent is impaired, the entity applies IAS 36, whether or not the asset is amortised.