Multiple Choice
Which of the following intangible assets are usually considered to have indefinite lives?
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8. Long Lived Assets
Intangible Assets and Amortization
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Which of the following assets is subject to amortization under U.S. GAAP?
A
Inventory
B
Goodwill
C
Patents
D
Land
Verified step by step guidance1
Understand the concept of amortization: Amortization refers to the systematic allocation of the cost of an intangible asset over its useful life. Under U.S. GAAP, only certain intangible assets are subject to amortization.
Identify the nature of each asset listed: Inventory is a tangible asset and is not amortized; it is expensed as Cost of Goods Sold when sold. Goodwill is an intangible asset but is not amortized; instead, it is tested for impairment annually. Land is a tangible asset and is not amortized because it has an indefinite useful life.
Focus on patents: Patents are intangible assets with a finite useful life, typically determined by their legal protection period (e.g., 20 years). Under U.S. GAAP, patents are subject to amortization over their useful life.
Determine the correct answer: Based on the analysis, patents are the only asset listed that is subject to amortization under U.S. GAAP.
Conclude the reasoning: The systematic allocation of the cost of patents over their useful life aligns with the principles of amortization, making them the correct answer in this context.
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