Indefinite useful life: no amortisation, annual testing

Learning objectives

• Identify the consequences of an indefinite useful life (no amortisation, annual impairment test).L2
• Assess whether the indefinite life remains supportable and account for its change to a finite life.L3, L4
• Calculate the amortisation charge after the change from an indefinite to a finite useful life.L3

Normative references

• IAS 38 §107An intangible asset with an indefinite useful life is not amortised.
• IAS 38 §108Under IAS 36, it is tested for impairment annually and whenever there is an indication that it may be impaired.
• IAS 38 §109The useful life of an asset that is not being amortised is reviewed each period; a change from indefinite to finite is a change in an accounting estimate.
• IAS 38 §110Under IAS 36, reassessing the useful life of an intangible asset as finite rather than indefinite is an indication that the asset may be impaired: the entity tests the asset by comparing its recoverable amount with its carrying amount.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

24 questions

• An entity concludes that an acquired brand has an indefinite useful life. What treatment then applies to the brand?L2
• A food group holds an acquired brand, recognised for several years with an indefinite useful life. A new health regulation will ban, in four years, the sale of the products marketed under this brand, and no repositioning is planned. The head of consolidation believes it is enough to continue the annual impairment test. Write a judgement memo on the treatment of the brand at the year-end.L4
• True or false? Under the cost model, the carrying amount of an intangible asset whose useful life has been indefinite since initial recognition equals its cost less accumulated impairment losses only.L2
• Three years ago, Volterre acquired for 400,000 a licence whose useful life is assessed as indefinite; it applies the cost model. Accumulated impairment losses recognised since acquisition amount to 30,000. An intern proposes to amortise the licence over 10 years. What is the carrying amount of the licence at the reporting date?L2
• Laiterie Morvelle holds a milk production quota acquired for {initial_amount} on 1 January 20X1. The quota, whose useful life is indefinite, is not amortised; it is measured under the revaluation model by reference to an active market. Its fair value is {fair_value_20x1} at 31 December 20X1, then {fair_value_20x2} at 31 December 20X2. Ignore deferred tax effects. Calculate, for 20X2, the portion of the increase recognised in profit or loss and the portion recognised in other comprehensive income.L3
• Les Vergers Haldane hold a transferable irrigation right, with an indefinite useful life and not amortised, revalued by reference to an active market. At the previous revaluation, a decrease of {previous_decrease_in_pl} was recognised in profit or loss for this right, bringing its carrying amount down to {carrying_amount}. No other revaluation has taken place since. At the year-end, its fair value amounts to {fair_value}. Ignore deferred tax effects. Calculate the portion of the increase recognised in profit or loss and the portion recognised in other comprehensive income.L3
• Pêcheries du Ponant hold a transferable fishing authorisation, with an indefinite useful life and not amortised, measured under the revaluation model. At the previous revaluation, a decrease of {previous_decrease_in_pl} was recognised in profit or loss for this asset, whose carrying amount was brought down to {carrying_amount}. At the year-end, fair value measured by reference to the active market is {fair_value}. Ignore deferred tax effects. Record the revaluation entries.L3
• Sucrerie Vallarde holds a transferable sugar beet production quota, with an indefinite useful life and not amortised, measured under the revaluation model. Before the year-end revaluation, its carrying amount is {carrying_amount} and the revaluation surplus relating to this quota has a credit balance of {surplus_balance}. Fair value measured by reference to the active market is {fair_value}. Ignore deferred tax effects. Calculate the portion of the decrease recognised in other comprehensive income and the portion recognised in profit or loss.L3
• Air Méridane owns a transferable landing slot, not amortised because its useful life is indefinite, which it revalues by reference to an active market. The revaluation surplus accumulated for this slot amounts to {surplus_balance}. At the reporting date, the slot is carried at {carrying_amount} before revaluation, while the market now values it at {fair_value}. Ignore deferred tax effects. Which portions of the decrease go to other comprehensive income and to profit or loss respectively?L3
• Domaine Castelmaure holds transferable vine planting rights, with an indefinite useful life and not amortised, revalued by reference to an active market. Before the year-end revaluation, their carrying amount is {carrying_amount} and the related revaluation surplus has a credit balance of {surplus_balance}. Their fair value is now {fair_value}. Ignore deferred tax effects. Record the revaluation entries.L3
• Which of the following statements on assessing the useful life of an intangible asset are correct?L3
• Eaux de Sorbiers acquires a mineral water brand that has been marketed for more than a century. Its legal protection, for a term of 10 years, is renewable without limit for a small fee, and the entity has always renewed its other brands. Market studies show stable demand, the product is not exposed to technological obsolescence and the advertising expenditure needed to maintain the brand is moderate and budgeted. The entity intends to exploit the brand with no time limit. What treatment should be applied?L4
• True or false? The Saveurs d'Antan group holds an acquired brand with an indefinite useful life. Last year's impairment test showed a wide margin between recoverable amount and carrying amount, and no indication of impairment has arisen this year. The group may skip testing the brand at this year-end.L2
• True or false? When an entity concluded on initial recognition that a licence has an indefinite useful life, that assessment no longer needs to be reconsidered afterwards, unless the licence is sold.L2
• A hotel group holds the following intangible assets. Which one must not be amortised?L2
• At the year-end, a press publisher concludes that the magazine title it had acquired, previously regarded as having an indefinite useful life, now has a useful life of only 6 years. Which of the following consequences are correct?L3
• An acquired cosmetics brand, never amortised because its useful life was judged indefinite, has a carrying amount of {brand_carrying_amount} at 31 December 20X3. At that date, new regulations on certain ingredients lead management to set its remaining useful life at {remaining_life} years, with no residual value. The test performed under IAS 36 gives a recoverable amount of {recoverable_amount}. Calculate the impairment loss to be recognised at 31 December 20X3 and the annual charge from 20X4.L3
• The regional radio station Onde Claire holds a broadcasting authorisation that has so far been renewed without difficulty and is therefore not amortised. At the end of 20X5, the regulator announces that frequencies will be reallocated by tender in {years_to_expiry} years: the authorisation will end at that date, with no residual value. Its carrying amount is {licence_carrying_amount}; the appointed valuer has determined under IAS 36 a recoverable amount of {licence_recoverable}. What impairment loss should be recognised at the end of 20X5, and what annual charge should be used thereafter?L3
• On 1 January 20X1, a dairy cooperative acquires a cheese brand for {brand_cost}; the brand's useful life is judged indefinite. The seller had amortised it over {suggested_period} years. The cooperative applies the cost model. After {years_held} years, the annual impairment tests under IAS 36 have all shown a recoverable amount above the carrying amount. What are the accumulated amortisation and the carrying amount of the brand at 31 December 20X3?L2
• The Brindor group holds a trade name acquired for a range of biscuits, with a carrying amount of 600,000, not amortised because its useful life was judged indefinite. In December 20X4, the board decides to discontinue the range and stop using the name in 3 years, with no residual value. The test under IAS 36 shows a recoverable amount of 650,000. Which treatment should be adopted?L4
• Aquilon performs the impairment test of a distribution licence with an indefinite useful life every November. In June 20X2, its main customer, which accounts for most of the sales made under the licence, terminates its contract, which is an indication of impairment. The controller proposes to wait for the November test. What should be done?L2
• The Fraîcheur des Cimes group holds a soft drinks brand acquired eight years ago and recognised with an indefinite useful life. During the year, its sales fell by 30% as tastes shifted towards sugar-free drinks. Management is preparing a new recipe and a relaunch plan, not yet funded, and claims that nothing changes since the annual test will be carried out as usual. Write a judgement memo on the treatment of the brand at the year-end.L4
• The Sorvelle group, which applies the cost model, holds an indefinite-life brand acquired for 900,000. An impairment loss of 150,000 was recognised two years ago, with no reversal since. The controller proposes to disclose the carrying amount after deducting notional amortisation of 90,000. Which carrying amount must be disclosed for this brand?L3
• The finance director of the Lamberge group, which holds two acquired brands with indefinite useful lives (a cosmetics brand with a carrying amount of 3,100,000 and a tools brand with a carrying amount of 1,700,000), considers detailed disclosures on these brands unnecessary since they generate no amortisation charge. Write a reasoned memo replying to him and specifying the information to be disclosed.L3