FAR coverage for finite-lived and indefinite-lived intangibles, goodwill, impairment, and internal-use software.
Intangible assets questions usually turn on classification before calculation. FAR candidates need to decide whether the item is an identifiable intangible asset, goodwill from a business combination, internally generated cost, or software-related cost that falls under a specific capitalization model.
The next decision is useful life. Finite-lived intangibles are amortized over the period of expected benefit and reviewed for impairment under the applicable long-lived-asset model. Indefinite-lived intangibles are not amortized, but they still require impairment analysis. Goodwill has its own recognition and impairment logic, and software costs often depend on the development stage rather than on the label attached to the project.
| Fact-pattern clue | Likely accounting focus | Common FAR trap |
|---|---|---|
| Purchased patent, license, customer list, or trademark | Identifiable intangible asset recognition, useful life, amortization, and impairment. | Assuming every intangible asset is amortized even when the useful life is indefinite. |
| Excess purchase price in a business combination | Goodwill recognition and goodwill impairment testing. | Recording internally generated goodwill or treating goodwill like a separately identifiable asset. |
| Research, startup, or internally generated brand costs | Expense versus capitalization analysis. | Capitalizing costs merely because they may create future value. |
| Internal-use software project | Stage-based capitalization and amortization. | Applying ordinary PP&E logic without identifying the project stage. |
| Step | What to do | Why it matters on FAR |
|---|---|---|
| 1. Classify the item | Determine whether the fact pattern involves an acquired identifiable intangible, goodwill, internal development, research, startup cost, or software project. | The classification controls recognition before amortization or impairment can be evaluated. |
| 2. Identify acquisition source | Separate purchased assets, business-combination assets, internally generated costs, and development-stage software costs. | FAR often denies capitalization when future benefit exists but recognition criteria are not met. |
| 3. Determine useful life | Decide whether the asset has a finite life, indefinite life, or goodwill-specific treatment. | Finite-lived intangibles are amortized; indefinite-lived assets and goodwill are not amortized. |
| 4. Apply impairment logic | Match the asset category to the correct impairment model and triggering events. | Goodwill, indefinite-lived intangibles, and finite-lived intangibles are not tested the same way. |
| 5. Check presentation and disclosure | Consider accumulated amortization, impairment losses, useful-life judgments, and software-cost disclosures. | Exam answers may require the reporting effect, not only the carrying amount. |
| Checkpoint | Exam use | What to avoid |
|---|---|---|
| Identifiability | Decide whether the item is separable, contractual, legal, goodwill, internally generated, or software related. | Capitalizing an internally generated brand or goodwill because it has business value. |
| Acquisition source | Separate purchase, business combination, internal development, research, startup, and software-stage facts. | Applying one capitalization rule to every intangible-looking cost. |
| Useful life | Classify the asset as finite-lived, indefinite-lived, or goodwill. | Amortizing an indefinite-lived intangible or goodwill under ordinary amortization logic. |
| Impairment model | Match finite-lived, indefinite-lived, goodwill, and software assets to the correct impairment approach. | Testing all intangible assets with the same recoverability sequence. |
| Reporting effect | Identify amortization, impairment loss, carrying amount, accumulated amortization, and disclosure implications. | Stopping at recognition without showing the statement consequence. |