ACCA Financial Reporting (F7) Practice Exam 2025 – Complete Prep Guide

Intangible assets with an indefinite life must be tested for impairment annually because they are not subject to systematic amortization. The rationale behind this requirement is that indefinite-life assets could potentially lose value over time due to various factors such as changes in market conditions, legal or regulatory changes, or shifts in consumer preferences.

The impairment test is crucial as it helps determine whether the carrying amount of the intangible asset exceeds its recoverable amount, which is defined as the higher of its fair value less costs of disposal and its value in use. If the carrying amount exceeds the recoverable amount, an impairment loss must be recognized.

Amortization applies to intangible assets that have a finite useful life, while fair value measurements are relevant but not specifically mandated for annual testing of indefinite life intangibles. The notion of gain or loss generally relates to disposal of assets rather than annual assessment thresholds for intangible assets. Thus, the focus on impairment testing aligns with ensuring that financial statements reflect the true economic value of intangible assets held on the balance sheet.