Question

HELP!! I need an answer ASAP

Question: When is an intangible asset that is to be amortized considered as having a residual value other than $0?

note: b.         Provide your answer using complete statements and using proper grammar, punctuation, etc.

c.         Provide a proper reference from FASB Codification in proper form: xxx-xx-xx-xx or xxx-xx-xx

Answer 1

The residual value of an intangible asset shall be assumed to be zero unless at the end of its useful life to the entity the asset is expected to continue to have a useful life to another entity and:

(a) the reporting entity has a commitment from a third party to purchase the asset at the end of its useful life or

(b) the residual value can be determined by reference to an exchange transaction in an existing market for that asset and that market is expected to exist at the end of the asset’s useful life.

Amortizable amount and residual value (FASB extract)

B55. The Board noted that some intangible assets could have residual values at the ends of their useful lives to the entity that acquired them. Opinion 17 was silent about the role of residual values in determining the amortizable amount; however, both FRS 10 and IAS 38 address residual values. Thus, the Board concluded that explicit mention should be made of the use of residual values in determining amortizable amounts. Specifically, the Board decided that the residual value of an intangible asset should be assumed to be zero unless the asset’s useful life to the reporting entity is less than its useful life generally and reliable evidence is available concerning the residual value. Such evidence should be in the form of either a commitment by a third party to purchase the asset at the end of its useful life or an existing market for the asset that is expected to exist at the end of the asset’s useful life. During its re-deliberations of the 1999 Exposure Draft, the Board clarified that the residual value is the net amount that an entity expects to obtain for an intangible asset at the end of its useful life to that entity—not at the end of its useful life in general. The Board also clarified that the residual value should be determined net of any costs to dispose of the intangible asset.