The definition of intangible assets is an asset that lacks physical substance. It means that you can not touch or pick it up.
Examples are goodwill, patents, computer software developed, trademarks, and copyrights.
A tangible Asset has a physical nature and can include buildings, vehicles, equipment, and stock.
Intangible Assets Balance Sheet
They are typically listed on the balance sheet as part of the assets of the business. The total of fixed assets and intangible assets equals the value of all the assets in the business.
Intangible Assets List
There are several different intangible assets; we look at a few of them.
The government grants patents for new inventions, and it stops others from being able to make, use or sell an item without their permission. Patents are granted for each country, and it will stop other business importing or making the same item in that country.
The Intellectual Property Office grants patents in the UK. If you own a patent, a value can be put against it. Putting a value against a patent is not an easy task; it is best to seek the advice of a professional. Some patents may have no value at all.
“A trademark is any name, symbol, figure, letter, word, or mark adopted and used by a manufacturer or merchant in order to designate his or her goods and to distinguish them from those manufactured or sold by others.” – defined by dictionary.com.
You will see examples of trademarks everywhere you go from fast-food chains to accountancy software. Each business registers their trademark ensuring that others can not use it or something very similar.
A trademark has a value to a business and depending on the size of the business will depend on the value of it in the accounts. You will need the advice of an accountant to value a trademark.
Goodwill is calculated when a business purchases another business. It is the value paid for the business less the actual value of the business in the accounts.
An example is; business A purchases business B for 5000. In the accounts, business B is valued at 4000. Therefore the goodwill is 1000.
If your business develops computer software to resell, the completed software package will have a value. There may also be costs involved in developing software for internal use of the business. An accountant will recommend which software to include as an intangible asset and the value.
Any computer software will either continue development or have a useful life span. It will mean that the value may change each year.
Brands – Intangible Assets
If your business has a well-known brand or your brand adds value to the business it will be included.
An example of a brand is Cadburys has lots of different brands including 99 Flake, Roses, Wispa and Twirl to name but a few.
Knowledge of your personnel can also have a value. Research and development is also part of knowledge, but can be very difficult to value.
Intangible Assets accounting
Intangible assets are recorded together in the balance sheet and totalled. Some intangible assets are not included and calculating the value may need an expert.
If they are depreciated over time, it is called Amortisation. An example of amortisation is that a business obtains a trademark which is valued at 5000 for 10 years. The amortisation is therefore over 10 years and would be 500.00 per year. At the end of the 10 years, the trademark can be renewed.
IAS38 is the accounting requirements for intangible assets. Full details on IAS38 is available on the Deloitte website.
Return from Intangible Assets to balance sheet.