Assessment of useful life: finite or indefinite

Learning objectives

• Assess whether the useful life is finite or indefinite on the basis of the relevant factors.L2, L3, L4
• Prepare the documentation of the useful life in a working paper.L3, L4

Normative references

• IAS 38 §88The entity assesses whether the useful life is finite (length or number of units) or indefinite (no foreseeable limit to the period over which the asset is expected to generate net cash inflows).
• IAS 38 §90Many factors are considered in determining the useful life: the expected usage (and whether the asset could be managed efficiently by another management team); typical product life cycles and public information on estimates of useful lives of similar assets; technical, technological, commercial or other types of obsolescence; the stability of the industry and changes in market demand for the output of the asset; expected actions by competitors or potential competitors; the level of maintenance expenditure required and the entity's ability and intention to reach that level; the period of control and legal or similar limits on the use of the asset; dependence on the useful life of other assets.
• IAS 38 §91An indefinite useful life does not mean infinite. The useful life reflects only the level of future maintenance expenditure required to maintain the asset at the standard of performance assessed at the time of the estimate, and the entity's ability and intention to reach that level; an indefinite useful life cannot be based on planned future expenditure in excess of that required to maintain that standard of performance.

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

19 questions

• Which of the following factors does the entity consider when assessing the useful life of an intangible asset?L3
• A radio station acquires a broadcasting licence granted for ten years by the regulator. The licence can be renewed with no limit at a low administrative cost; the regulator has always renewed it for operators meeting their obligations, and the station intends to keep it and has the means to meet those obligations. Its transmission equipment should be replaced in six years, with no effect on the right to broadcast. The finance director proposes amortising the licence over six years. Write a judgement memo on the useful life of the licence.L4
• What does an indefinite useful life mean for an intangible asset?L2
• An entity concludes that an intangible asset has a finite useful life. In what form can that life be expressed?L2
• Which of the following statements on assessing the useful life of an intangible asset are correct?L3
• Imprimerie Dalbret acquires a perpetual licence for a control module that only works with its current management platform. The platform vendor has announced the end of support in 4 years and Dalbret has planned its migration to another system at that date; the module will not be compatible with the new system. What useful life should be used for the module?L3
• Thermique Escaut acquires the brand of a range of oil-fired boilers that is firmly established in its market. Regulation already adopted will ban the sale of these boilers in 7 years. The brand is closely associated with this technology and the entity has neither the intention nor the ability to use it for other products; no cash flows are expected from it after the ban. Its legal protection is renewable without limit at a low cost. What conclusion should be reached on the brand's useful life?L4
• 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
• An entity concludes that an acquired brand has an indefinite useful life. What information must it disclose in this respect in the notes?L3
• In a workpaper, the accounting team of Studio Kalimba concludes on an indefinite useful life for an acquired video game franchise. The only documented justification is management's intention to keep publishing games under this franchise. What should be completed as a priority?L4
• Comparateur Hélianthe acquires an online booking platform and separately identifies the site's brand and domain name. Management wants to adopt an indefinite useful life: the domain name is renewed each year at a low cost and traffic has been stable for several years. However, the industry is undergoing rapid technological change, two competitors have recently disappeared after customers switched to mobile apps, and maintaining the audience requires heavy marketing and technical investment, which the entity has not budgeted beyond 3 years. Write the workpaper section on the useful life of the brand and the domain name.L4
• Which of the following facts are relevant factors that may lead an entity to adopt a shorter useful life for an intangible asset?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
• 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
• Mirabeau Thermal is drafting the justification for the indefinite useful life of an acquired mineral water brand. Which item is relevant to describe as a significant factor in the note?L3
• Hélvarn's audit committee reviews four proposed wordings to justify, in the notes, the indefinite useful life of an acquired newspaper title. Which one is acceptable?L3
• Six years ago, the Cassévane group acquired a brand of artisan jams that has been on its market for more than a century. The market is stable, the brand is supported by an annual advertising budget that the group is committed to maintaining, no technical obsolescence is conceivable and the brand is protected by a renewable registration. Management has concluded that the useful life is indefinite. Carrying amount at the reporting date: 2,600,000. Draft the paragraph of the notes dealing with this brand.L3
• You are reviewing Pontavel's draft notes. For an acquired magazine title, the paragraph is limited to the following sentence: in accordance with group policy, press titles have an indefinite useful life and are not amortised. No amount is given. Write your review comments for the finance department.L3
• The management of Celmont considers that its beverage brand, acquired three years ago, has an indefinite useful life. Which statement about this assessment is correct?L2