Which statement about intangible assets and amortization schedules is true?

• A. Amortization applies to tangible assets
• B. Amortization applies to intangible assets with finite useful life
• C. Amortization applies to all intangible assets indefinitely
• D. Amortization does not apply to any asset

Answer: (B)

Amortization is the process of allocating the cost of an intangible asset over the periods it provides economic benefits. Only intangible assets with finite useful lives are amortized, spreading the cost across those years, usually on a straight-line basis, so the asset’s carrying amount declines each year. Intangible assets with indefinite lives aren’t amortized; they’re checked for impairment instead. Tangible assets use depreciation, not amortization. So the true statement is that amortization applies to intangible assets with finite useful life. For example, a patent costing 100,000 with a 10-year life would be amortized about 10,000 per year.