What triggers impairment testing for finite-lived intangibles?

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AcadiFi · Accepted Answer

Finite-lived intangibles follow ASC 360 (same as long-lived tangible assets), not ASC 350. They're tested only when indicators of impairment exist — no annual requirement.

Indicators include: significant decrease in market price, adverse changes in use or legal factors, adverse business climate, cost overruns on acquisition or development, current-period operating losses combined with a history of losses, and a more-likely-than-not expectation that the asset will be sold or disposed.

The test is a two-step process:
1. **Recoverability test**: Compare undiscounted expected future cash flows to carrying amount. If undiscounted > carrying, no impairment.
2. **Measurement**: If recoverability fails, impairment = carrying - fair value (discounted cash flows or market).

Example: Elestra Pharma has a patent for drug Zolixeron, carrying $48M, being amortized straight-line over remaining 6 years. A competitor launches a superior therapy. Projected undiscounted cash flows drop to $36M (was $75M) — recoverability fails. Fair value (DCF at 12%) = $28M. Impairment = $48M - $28M = $20M.

Post-impairment, the new $28M basis is amortized over remaining useful life (possibly reassessed). Unlike goodwill, IFRS permits reversal of impairment on finite-lived intangibles if recoverable amount recovers — US GAAP does not.

What triggers impairment testing for finite-lived intangibles?

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