Which of the following statements is true regarding the amortization of intangible assets?

• A. Goodwill is amortized over its estimated useful life.
• B. Intangible assets with indefinite useful lives are not amortized.
• C. All intangible assets must be amortized over a period of 10 years.
• D. Amortization of intangible assets increases the asset's carrying value.

Answer: (B)

Verified step by step guidance

1. Understand the concept of amortization: Amortization is the systematic allocation of the cost of an intangible asset over its useful life. It is similar to depreciation but applies to intangible assets rather than tangible ones.
2. Identify the types of intangible assets: Intangible assets can be classified into two categories: those with finite useful lives (e.g., patents, copyrights) and those with indefinite useful lives (e.g., goodwill).
3. Clarify the treatment of intangible assets with indefinite useful lives: Intangible assets with indefinite useful lives, such as goodwill, are not amortized. Instead, they are tested annually for impairment to ensure their carrying value does not exceed their recoverable amount.
4. Review the incorrect statements: Goodwill is not amortized over its estimated useful life; it is tested for impairment. Not all intangible assets are amortized over a period of 10 years; the amortization period depends on the asset's useful life. Amortization decreases the asset's carrying value, not increases it.
5. Conclude with the correct statement: The correct statement is that intangible assets with indefinite useful lives are not amortized. This aligns with accounting standards such as GAAP and IFRS.