Indefinite useful life

Indefinite useful life

When an asset has indefinite use full life than it is not amortized rather it is checked for impairment annually.

Example # 1

ABC & company got patent right at once and this arrangement is not to be renewed. The cost of Patent right was $ 20 Million. The fair value next year was decreased $ 15. How this situation will be account for in the books of accounts.

Solution

1. Initial Recognition

The asset is to be recognized at the cost in first place.

Date	Particulars	Dr	Cr.
	Patent Rights	$ 20 Million
	Cash		$ 20

2. Amortization at year end

There is no amortization as the asset has indefinite useful life.

3. Impairment check next Year

There is indication of impairment as carrying amount is exceeding the fair value.

Date	Particulars	Dr	Cr.
	Impairment	$ 5 Million
	Patent Rights		$ 5