Which statement about indefinite-lived intangibles is true?

• A. Finite-lived intangibles are amortized.
• B. Indefinite-lived intangibles are not amortized but impairment tested.
• C. They must always be written off immediately.
• D. They are amortized on a straight-line basis.

Answer: (B)

Indefinite-lived intangible assets are not amortized because they don’t have a finite useful life. Since there isn’t a predictable period over which the asset’s economic benefits will be consumed, there’s no systematic basis to allocate cost over time. Instead, these assets are tested for impairment to ensure their carrying amount hasn’t become unrecoverable. The usual approach is to compare the asset’s carrying amount with its recoverable amount (the higher of value in use and fair value less costs to dispose). If the recoverable amount is less, an impairment loss is recognized to bring the carrying amount down to the recoverable amount. Once an impairment is recognized, it reduces future earnings but isn’t amortized away over time.

Finite-lived intangibles, by contrast, are amortized over their estimated useful lives, which is why statements about amortization apply to those assets but not to indefinite-lived ones. They’re not typically written off immediately unless impairment criteria are met, and indefinite-lived assets are not amortized on a straight-line basis. A common example of an indefinite-lived asset is goodwill, which is impairment-tested rather than amortized.