What is the difference between finite and indefinite-life intangibles?

Full Explanation

Finite-life intangibles have a predictable economic life: a patent expires in 20 years (legal life), but economically useful for 10-15 years (rapid obsolescence). Amortisation expense is recognised annually (straight-line or accelerated), flowing through the P&L. Indefinite-life intangibles (typically brands, market position, assembled workforce for regulated utilities) are not amortised. Instead, they're tested annually for impairment: if fair value declines below carrying value, an impairment charge is recognised. The distinction matters for financial reporting: finite-life intangibles create predictable annual amortisation; indefinite-life create lumpy impairment charges if business performance disappoints. Common indefinite-life intangibles: world-class brands (Coca-Cola, Hermès) with active renewal and strong protection, market position in regulated industries, and assembled workforces in specific sectors. The challenge: determining whether an intangible is finite or indefinite. Auditors scrutinise these classifications. A brand claimed as indefinite must show evidence of renewal (marketing investment) and protection (trademarks, regulatory barriers) — brands neglected or facing competitive pressure should be reclassified as finite-life. In the Asset Valuator in Opagio Intangibles, the projection period you enter and the tax amortisation benefit setting change the fair value, so the finite or indefinite classification should inform those inputs.

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