Amortization of intangibles: finite vs indefinite. Which statement is true?

• A. Finite-lived intangibles are not amortized.
• B. Indefinite-lived intangibles are amortized over a fixed period.
• C. Finite-lived intangibles are amortized over estimated useful life; indefinite-lived are not amortized but impairment tested.
• D. Both are amortized over the same period.

Answer: (C)

Finite-lived intangible assets have a definite economic life, so their cost is allocated over that life through amortization. The amortization period is based on the estimated useful life and reflects how the asset’s benefits are consumed. Indefinite-lived intangible assets do not have a foreseeable end to benefits, so there is no systematic amortization. Instead, they are tested for impairment at least annually and whenever there are indications of impairment. That’s why the statement that finite-lived intangibles are amortized over estimated useful life and indefinite-lived intangibles are not amortized but impairment tested is correct. The other options don’t fit: finite-lived assets are amortized (not excluded), indefinite-lived assets are not amortized (not over a fixed period), and they are not amortized over the same period.