Multiple Choice
Which of the following is properly recorded as an intangible asset?
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8. Long Lived Assets
Intangible Assets and Amortization
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The residual value of an intangible asset is usually:
A
Equal to the asset's original cost.
B
Determined by the estimated cash flows the asset will generate after its useful life.
C
Based on the asset's fair market value at the end of its useful life.
D
Zero, because most intangible assets have no salvage value at the end of their useful life.
Verified step by step guidance1
Understand the concept of residual value: Residual value refers to the estimated value of an asset at the end of its useful life. For intangible assets, this is typically zero because they generally do not have a salvage value.
Review the nature of intangible assets: Intangible assets, such as patents, trademarks, and copyrights, are non-physical assets that provide economic benefits. Their value is often tied to their ability to generate revenue during their useful life.
Consider the accounting treatment: In financial accounting, intangible assets are amortized over their useful life, reducing their book value to zero by the end of the amortization period.
Examine why residual value is zero: Unlike tangible assets, intangible assets usually do not have a physical form that can be sold or repurposed after their useful life. Therefore, their residual value is considered zero.
Apply this understanding to the problem: The correct answer is zero because most intangible assets do not have a salvage value at the end of their useful life, aligning with standard accounting practices.
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