Assets
The Intangible Test
Acquired intangibles are capitalized, internally generated ones are expensed, and goodwill is impairment-only.
How the exam words it
- -The stem asks which cost 'should be CAPITALIZED under US GAAP' among a mix of R&D, legal fees, and registration costs.
- -It gives a reporting unit's fair value and carrying value and asks 'what goodwill impairment loss should be recognized?'.
- -Software costs straddle technological feasibility and it asks 'how much should be capitalized?'.
- -An acquired trademark 'has no foreseeable limit on its useful life' and it asks for the accounting.
The playbook
- 1Capitalize purchased intangibles and the legal fees to register or successfully defend a patent; expense R&D and internally generated brands as incurred.
- 2Finite life: amortize over the shorter of useful or legal life. Indefinite life: no amortization, test for impairment at least annually.
- 3Goodwill (ASU 2017-04): impairment = reporting unit carrying value minus fair value, capped at the goodwill balance, and public companies never amortize it.
- 4Software for sale: expense until technological feasibility, capitalize after it.
The trap
Capitalizing R&D. Nearly all research and development, including research scientists' salaries, is expensed as incurred.
How the exam varies it
The same pattern, re-skinned along these axes:
Acquired versus internally generatedFinite life versus indefinite life versus goodwillCapitalize-or-expense call versus an amortization or impairment computation
Drill this pattern
8 questions of The Intangible Test from across the AUD topics. Clear it by getting 5 right with a streak of 3.