FRS10 requires the amortisation of positive goodwill and
intangible assets where they have limited useful economic lives.
They should be amortised over these useful lives on a basis that
reflects the expected pattern of depletion, which is assumed to be
a straight-line basis unless another method can be demonstrated as
more appropriate. In any event, if the use of intangible assets
ends when certain legal rights expire (even if there is good
prospect of renewal) then the period of the legal rights would be
the maximum amortisation period.
In general it is expected that intangibles will have a useful
life of
no more than 20 years. A longer period is
permitted only where the durability can be demonstrated, and the
goodwill or intangible asset is capable of continued measurement
(so that annual impairment reviews will be feasible -
CIRD30555).
Problems occur when goodwill becomes mixed, because systems
are not in place to identify cash flows at the relevant asset
level, or because the amounts in question are not sufficiently
material to justify an annual impairment review). In these cases an
appropriate period of amortisation of less than 20 years would be
acceptable.
While uncertainty as to the long-term value of goodwill or an intangible asset provides grounds for estimating the useful economic life on a prudent basis, it does not give grounds for choosing a life that is unrealistically short.
If an impairment review (CIRD30555) results in the recognition of an impairment loss, the revised carrying value (if being amortised) should be amortised over the current estimate of the remaining useful life.
The useful economic lives of goodwill and intangible assets should be reviewed at the end of each reporting period and revised if necessary. If this period is revised, then the carrying value of the intangible or goodwill should be amortised over the revised remaining useful economic life. If the effect of the revised economic life is to increase this to more than 20 years from the date of acquisition, then the rules requiring annual impairment reviews etc. will apply.
