Brand Valuation > Financial > SFAS 142
Statements of Financial Accounting Standards SFAS 142
Under Statement 142, goodwill and indefinite lived
intangible assets are
no longer amortized but are reviewed annually for impairment, or more
frequently, if impairment indicators arise. Goodwill is required to be
tested for impairment between the annual tests if an event occurs or
circumstances change that more likely than not reduce the fair value of
a reporting unit below its carrying value. An indefinite lived
intangible asset is required to be tested for impairment between the
annual tests if an event occurs or circumstances change indicating that
the asset might be impaired. Intangible assets that have finite lives
will continue to be amortized over their useful lives, for which
Statement 142 does not impose a limit.
Statement 142 provides a model and methodology to test for and measure
goodwill impairment that is to be applied by both public and non-public
companies. The two-step model provides a test for potential impairment
(Step 1) and, if necessary, a measurement of the impairment (Step 2).
Statement 142 also provides specific guidance to test intangible assets
not being amortized for impairment, creating what is essentially a lower
of cost or fair value model for these assets.
The useful life of an intangible asset:
- Is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of that entity.
- To an entity shall be based on an analysis of all pertinent factors, in
particular:
- The expected use of the asset by the entity.
- The level of maintenance expenditures required to obtain the expected future cash flows from the asset (for example, a material level of required maintenance in relation to the carrying amount of the asset may suggest a very limited useful life).
- Shall be considered indefinite, if no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity. The term indefinite does not mean infinite.
See Paragraph 11 of SFAS 142.