How are identifiable intangible assets recognized and distinguished between finite and infinite lives?

• A. Identifiable intangible assets are recognised if probable future benefits are controlled; finite-lived assets amortised; indefinite-lived assets are not amortised but tested for impairment annually
• B. Intangible assets are not recognised unless physical form exists
• C. Finite-lived assets are not amortised; indefinite-lived assets are amortised
• D. Both finite and infinite-lived intangibles are amortised annually.

Answer: (A)

The main idea here is how identifiable intangible assets are recognised and how their life affect their measurement. Under IFRS, an identifiable intangible asset is recognised when it is probable that the expected future economic benefits will flow to the entity and the cost of the asset can be measured reliably. Once recognised, the approach to measurement depends on the asset’s life.

If the asset has a finite useful life, it is amortised over that finite period, systematically allocating the cost to expense over the periods that benefit from the asset. If the asset has an indefinite life, it is not amortised; instead it is carried at cost and tested for impairment at least annually, and more frequently if there are indications of impairment. If impairment is indicated, the carrying amount is reduced to reflect recoverable amount.

This differs from statements that require intangible assets to have physical form for recognition (which isn’t true) or that all intangible assets are amortised (indefinite-lived assets aren’t). Also, it’s not correct to say both finite and indefinite-lived assets are amortised, since indefinite-lived assets use impairment testing rather than amortisation.