A company owns a trademark with an indefinite life (no legal, contractual, or economic factors limiting its life), carried at $2 million. At its annual testing date, management performs a qualitative assessment of macroeconomic conditions, industry trends, and entity-specific factors and concludes it is not more likely than not (that is, less than a 50% likelihood) that the trademark is impaired. Under ASC 350-30, what must the company do next?
- Nothing further this period — because the qualitative assessment concluded impairment is not more likely than not, the company may bypass the quantitative fair-value comparison for this testing cycle
- Proceed to the quantitative test regardless, comparing fair value to carrying amount, because the qualitative assessment is only advisory and can never substitute for the quantitative test
- Begin amortizing the trademark going forward, because indefinite-lived intangible assets that pass a qualitative test must be reclassified as finite-lived
- Perform the pre-2017 two-step goodwill impairment test, because indefinite-lived intangible assets other than goodwill follow the old goodwill impairment model
Why A? And why not the others?
Correct answer: A. Nothing further this period — because the qualitative assessment concluded impairment is not more likely than not, the company may bypass the quantitative fair-value comparison for this testing cycle
ASC 350-30-35 allows an entity to first perform an optional qualitative assessment for an indefinite-lived intangible asset other than goodwill to decide whether it is more likely than not that the asset is impaired. If the entity concludes it is not more likely than not, it may bypass the quantitative fair-value-versus-carrying-amount comparison for that testing cycle, similar to the analogous option available for goodwill. Option B misstates the standard: the entire purpose of the qualitative option is that it can substitute for quantitative testing when the more-likely-than-not threshold isn't met. Option C is wrong because passing a qualitative impairment assessment has no bearing on useful-life classification; whether an intangible asset's life is indefinite depends on separate cash-flow-generating factors, not on impairment test outcomes. Option D is wrong because indefinite-lived intangibles other than goodwill have always used a direct fair-value-to-carrying-amount comparison under ASC 350-30, unrelated to the goodwill-specific simplification made by ASU 2017-04.
Source: FASB ASC 350-30-35 (impairment testing of indefinite-lived intangible assets)