Scope

ASC 350 establishes the accounting for goodwill and other intangible assets, including the initial recognition (in conjunction with ASC 805 for acquired intangibles), the subsequent accounting (amortization for finite-lived intangibles, impairment testing for goodwill and indefinite-lived intangibles), and the disclosure requirements.

The Topic is organized by subtopic:

350-20 — Goodwill
350-30 — General Intangibles Other than Goodwill
350-40 — Internal-Use Software
350-50 — Website Development Costs
350-60 — Crypto Assets (added in ASU 2023-08)

Goodwill — initial recognition

Goodwill arises only from business combinations (ASC 805). It is the residual after recognizing identifiable assets acquired and liabilities assumed at fair value. Goodwill is assigned to reporting units — the level at which it is subsequently tested for impairment.

A reporting unit is an operating segment or one level below (a "component" of an operating segment that constitutes a business and has discrete financial information available, reviewed by segment management). Identifying reporting units correctly drives the impairment analysis — too many reporting units fragments goodwill in ways that can trigger premature impairment; too few aggregates risk across businesses that should be tested separately.

Goodwill — subsequent accounting

For public business entities and most other entities, goodwill is not amortized. It is tested for impairment annually and more frequently if triggering events occur (significant adverse change in business climate, regulatory action, unanticipated competition, loss of key personnel, expectation of selling or disposing of a reporting unit, recognition of goodwill impairment in a subsidiary).

The impairment test under ASC 350-20-35 follows a sequence:

Optional qualitative assessment ("Step 0"). The entity may first assess qualitative factors (macroeconomic conditions, industry conditions, cost factors, overall financial performance, entity-specific events) to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If not, no further testing is required.

Quantitative test. If the qualitative assessment indicates it is more likely than not that fair value is less than carrying amount, or if the entity elects to bypass the qualitative assessment, the entity compares the fair value of the reporting unit with its carrying amount (including goodwill). If carrying amount exceeds fair value, the entity recognizes an impairment loss equal to the excess, not to exceed the goodwill balance allocated to that reporting unit.

The ASU 2017-04 simplification eliminated the previous "Step 2" of the impairment test (the hypothetical purchase price allocation to determine implied goodwill). Now the test is a one-step comparison.

Private company accounting alternative for goodwill

Private companies and not-for-profit entities can elect (under ASC 350-20-15-4 and 350-20-35-65) to:

Amortize goodwill on a straight-line basis over 10 years (or less if a shorter life is more appropriate)
Test for impairment only when a triggering event occurs, at the entity level (or reporting unit, by election)
Apply a simplified impairment test if a triggering event occurs

This alternative was created to reduce private company complexity and cost. Companies that anticipate going public should consider whether the alternative is worth electing — unwinding it for IPO requires retroactive treatment under ASC 250 (Accounting Changes and Error Corrections).

Finite-lived intangible assets

Intangible assets with finite lives are amortized over their useful lives, with the method reflecting the pattern in which the entity expects to consume the asset's economic benefits. Straight-line is the default if the consumption pattern is not reliably determinable.

Useful life estimation requires consideration of expected use, legal/contractual provisions, the effect of obsolescence, competition, demand, and the level of maintenance expenditure required.

Finite-lived intangibles are tested for impairment under ASC 360-10 (the long-lived asset impairment model), not ASC 350. Triggering events drive the test — there is no annual impairment test for finite-lived intangibles.

Indefinite-lived intangible assets

An intangible asset has an indefinite life if no legal, regulatory, contractual, competitive, economic, or other factors limit its useful life. Examples that often qualify: trade names that the entity intends to use perpetually, broadcast licenses with renewable terms and no expected non-renewal cost.

Indefinite-lived intangibles are not amortized. They are tested for impairment annually and more frequently if triggering events occur. The impairment test compares the fair value of the indefinite-lived intangible to its carrying amount, recognizing an impairment if carrying amount exceeds fair value. A qualitative assessment option (similar to goodwill's Step 0) is available.

Indefinite-lived classification must be reassessed each reporting period. When events or circumstances change such that the asset is no longer indefinite-lived, the asset is reclassified to finite-lived, the useful life is estimated, and amortization begins.

Internal-use software (ASC 350-40)

Costs incurred to develop or obtain internal-use software are accounted for in three stages:

Preliminary project stage — expensed as incurred (conceptual formulation, evaluation of alternatives, technology selection).
Application development stage — capitalized (design, coding, installation, testing, configuration to specified requirements). Capitalizable costs include external direct costs of materials and services, payroll and payroll-related costs of employees directly associated with the project, and interest costs under ASC 835-20.
Post-implementation/operation stage — expensed as incurred (training, application maintenance).

Capitalized software is amortized over its expected useful life, generally on a straight-line basis. Useful life is reassessed each period; obsolescence is a frequent trigger.

The CCA (cloud computing arrangement) clarifications in ASU 2018-15 require entities to evaluate whether a hosting arrangement includes a software license. If it does, the software portion is accounted for under ASC 350-40 (capitalize); if not, the entire arrangement is a service contract (expense). The distinction is whether the customer has the right to take possession of the software at any time during the hosting period without significant penalty and run it on its own hardware or contract with another party to run it.

Crypto assets (ASC 350-60)

ASU 2023-08 added Subtopic 350-60 for crypto assets meeting specified criteria (fungible, secured through cryptography, residing on a distributed ledger, not issued by the reporting entity or a related party, and not classified as a security). Such assets are measured at fair value through net income, with separate presentation and disclosure. This replaced the previous default treatment as indefinite-lived intangibles with downward-only impairment.

Crypto assets outside the 350-60 scope (e.g., NFTs, certain stablecoins, or crypto held by the issuing entity) remain under prior accounting frameworks.

Disclosure requirements

For goodwill (ASC 350-20-50):

Roll-forward of goodwill by reportable segment, with acquisitions, impairments, and other changes
Impairment information (description of facts, methodology, key assumptions)
Reporting unit information if a reporting unit's fair value is "not substantially in excess" of its carrying amount

For other intangibles (ASC 350-30-50):

Gross carrying amount, accumulated amortization, by major asset class
Aggregate amortization expense for the current period and estimated for the next five years
Information about indefinite-lived intangibles
Impairment information

Common pitfalls

Reporting unit misidentification. The reporting unit is at the operating segment or one level below — not always coincident with legal entity, business unit naming, or management reporting structure. Auditors test this annually; getting it wrong fragments or aggregates goodwill incorrectly.
Stale Step 0 qualitative assessments. A "more likely than not" qualitative conclusion needs to actually reflect current facts. A boilerplate Step 0 that doesn't update for changes in business conditions is a red flag.
Goodwill impairment timing. Impairment is recognized when a triggering event occurs, not at the annual test date if a trigger preceded it. Companies that defer the test until the annual measurement date risk a restatement.
Indefinite-lived intangibles that drift into finite-lived. Trade names assumed to be perpetual at acquisition can become finite-lived if the entity changes strategy, retires the brand, or limits its use. The reassessment isn't optional.
Capitalized software amortization driven by accounting convention, not economics. A five-year straight-line amortization across all capitalized software ignores that some software has a 12-month useful life (rapid replacement, agile development) and some has a 10-year life (core ERP). The useful life should reflect economic reality.
CCA license-or-service classification. The license/service distinction in hosting arrangements has direct P&L impact. Companies often default to service treatment to avoid capitalization, missing the license component when one exists.

Operator note

Goodwill impairment is the discipline where the financial reporting integrity of an acquisitive company gets tested. At Intersil during the integration of the Xicor, Elantec, and Zilker Labs acquisitions, the reporting unit boundaries and the assignment of goodwill across them were significant judgments. Each acquisition added goodwill to specific reporting units based on the operating segment structure at the time, and as the business reorganized over the years, that goodwill had to follow the reporting units as they recombined or split.

The thing that catches people: when an entity reorganizes and reporting units change, goodwill is reassigned to the new reporting units using a relative fair value approach. The new reporting units inherit the goodwill but at the post-reassignment carrying values, and the impairment risk profile shifts accordingly. A "clean" reporting unit that absorbs a struggling reporting unit through reorganization is the new owner of the impairment risk on its share of inherited goodwill.

For the internal-use software side, I've watched the CCA classification debate play out in finance teams across two decades. The default historical treatment was service (expense everything), then ASU 2018-15 forced companies to look at whether the contract included a license. Most found that they did. The fix is straightforward but the change in P&L profile — from expensing cloud spend to capitalizing the license portion and amortizing — is material for enterprise software heavy companies.

Related references

ASC 805 — Business Combinations (initial recognition of goodwill and intangibles)
ASC 820 — Fair Value Measurement (used in impairment testing)
ASC 360 — Property, Plant, and Equipment (long-lived asset impairment model for finite-lived intangibles)
IAS 36 — Impairment of Assets (international counterpart)
IAS 38 — Intangible Assets (international counterpart, with notable differences on R&D capitalization)