Useful life of intangible assets

Useful life of intangible assets

Didn't find your answer?

Hi, I would greatly appreciate your advice.

I have a client who sells food supplements on the Amazon platform. The company acquired this business along with several intangible assets, including the online marketplace and domains, intellectual property (IP), trademark, and goodwill. The financial reports for this company are prepared according to FRS 102, and the Cost model will be utilized for amortization calculations. I am uncertain about how to determine the useful life of these intangible assets and the criteria for choosing a lifespan for each. Can you provide guidance on this matter?

Replies (4)

Please login or register to join the discussion.

avatar
By David Ex
21st Feb 2024 11:56

Eva2 wrote:

I am uncertain about how to determine the useful life of these intangible assets and the criteria for choosing a lifespan for each. Can you provide guidance on this matter?

No idea but would have thought it’s a commercial and legal question.

What’s the client’s view? It’s their business so presumably have knowledge of the sector.

Thanks (1)
By Duggimon
21st Feb 2024 12:20

The online marketplace and domains are measurable, anyone can set their own up, I'd value them at what they'd cost to set up as new, probably not much.

The IP and trademarks are valued based on anticipated revenues arising from holding exclusive rights to them, difficult but measurable.

The goodwill is usually valued at what they paid for the business minus the value of everything else they've received.

The rules around the lifespan of each are in FRS 102, typically it's ten years unless you know or reasonably anticipate it being otherwise.

This is all just my interpretation of the FRS which is quite readable, chapter 18 deals with intangibles, when to recognise, how to measure etc.

Thanks (1)
avatar
By Eva2
21st Feb 2024 13:16

Thank you for your responses.
So in this case, these decisions need to be made by the business management, as we act as external accountants.

Thanks (0)
Replying to Eva2:
avatar
By paul.benny
21st Feb 2024 14:23

It is indeed management decision but they will probably look to you for guidance. You say you are "external accountants", so presumably they have not yet reached audit threshold but bear in mind that any accounting policy may need to be auditable in due course..

You mention different types of intangibles. You can of course adopt different lives for each but unless you have a reliable basis for a longer life, FRS102 suggests a maximum of 10 years. FWIW, I think that for the assets you mention I would go for 5 unless you think the brand name is particularly strong.

Always worth taking a look as the text of the standard - can be downloaded without charge from FRC website.

Thanks (2)