How are acquired identifiable intangible assets amortized if they have a finite useful life?

Identifiable intangible assets with a finite useful life are amortized over their expected useful life. This process involves allocating the cost of the intangible asset to expense over the period that the asset is expected to provide economic benefits. The rationale behind this method is that the value of the asset diminishes as it is used over time, reflecting a more accurate financial position of the company.

In practice, the amortization approach is straightforward. The asset’s initial acquisition cost is divided by its estimated useful life, resulting in an annual amortization expense that is recognized in the income statement. It is essential to note that though these assets may have a residual value, in many cases, it is often assumed to be zero when calculating amortization. This means that the entire acquisition cost of the asset is generally amortized over its useful life.

Other responses do not align with the accounting standards for intangible assets. For instance, not amortizing the asset and only testing it for impairment annually would apply to intangible assets with an indefinite useful life, which is not the case here. Amortizing based solely on the initial acquisition value without considering the useful life would violate the principle of matching expenses to the revenues they help generate. Immediate write-off of intangible assets upon acquisition contradicts the definition