Intangible Assets: GAAP And IFRS

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Recommended: Introduction of intangible assets

Intangible assets are assets that cannot be physically held, such as copyrights, brand names, trademarks, goodwill, and patents. There are two kinds of intangible assets, definite and indefinite. Definite assets have a useful life and would be amortized ever year to decrease the value, such as trademarks and patents. Indefinite do not have a definite life time and would last as long as the company stays in business. Definite assets need to be amortized based on their useful life by determining the pattern of use for the asset. For example, if a company uses an asset 40% the first year, 30% the next year, and 15% the next 2 years, then it would amortize the value following that pattern. If they do not know the pattern they would use the straight-line …show more content…

IFRS (International Financial Reporting Standards) is used in 110 different countries, however the GAAP (Generally Accepted Accounting Principles) is only used in the U.S. These two accounting practices report financial data differently, specifically intangible assets. Intangible assets under GAAP are recognized at fair value, however under IFRS “they are only recognized if the asset will have a future economic benefit and has a measured reliability” (2015, GAAP vs IFRS). There are other differences between these two practices for revaluations, advertising costs, goodwill, and internally developed intangible …show more content…

For goodwill, under GAAP, there is a two-step test to determine the impairment. The first step is to determine if the fair value is less than the carrying value. If the fair value is greater than there is no more testing for impairment. If the fair value is less than the carrying value than you must proceed to the second step. In the second step a comparison of the implied fair value of goodwill and the carrying amount of goodwill is required to determine whether goodwill is impaired. If the implied fair value of goodwill is greater than the carrying amount, than the difference is the impairment loss recognized. Under IFRS, goodwill is tested at the cash-generated unit for impairment. If the fair value, less costs, is less than the cash-generated unit, the difference is the impairment loss. The loss will reduce the value of the

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