Costs of intangible assets with indefinite lives

CFA Level I FRA
#1

Hey guys,

Question:
In applying the principles of expense recognition, companies should:
A Record any estimates of uncollectible amounts as a direct reduction of revenues
B Excluse costs of intangible assets with indefinite useful lives
C recognize credit losses on customer receivables when defaults occur

I’m having a hard time with the rational of this question. Why do they mean by “excluding costs of intangible assets with indefinite useful lives”? I mean yes i know that we can’t depreciate intangible assets with indefinite useful life (as goodwill for example), but then where does those costs get recorded? Just because something is not depreciated then tada we don’t recognize its costs?

What do they mean by “exclude costs of intangible assets with indefinite useful lives”? This implies that those costs exist, then if they exist, why would i exlude them from what i recognize as an expense?

#2

They mean that if you buy a trademark you have to capitalize it rather than expense it.

1 Like
#3

Lol, almost forgot that… Capitalizing, been a bit of time i didn’t come across this concept, means i need to plunge back on FRA. Thank you S2000magician.

#4

My pleasure.