Intangible Assets are crucial to business, though you can\u2019t touch it, it is very important for business owners. Let\u2019s dive into what intangible assets are, how to calculate their fair value and how you can account for them in books.<\/p>\n
Unlike tangible assets, <\/b>intangible assets are owned by your business but they don\u2019t have a physical presence or take up space.\u00a0<\/p>\n
Have you ever wondered what makes coca-cola famous? It is not only about the liquid inside the bottle, a huge chunk of their value comes from their name, logo, design of bottle and secret ingredient to make that liquid which is known as \u201cbrand value.<\/b>\u201d\u00a0<\/p>\n
According to IFRS<\/b><\/a>, \u201cAn intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights.\u201d<\/p>\n You can define intangible assets as \u201cvaluable resources of your business that don\u2019t have any physical form but any assets that contribute to the value of your business and its success.\u201d<\/p>\n As these assets are absent physically, they come in two categories:<\/p>\n Assets<\/a> which have no physical presence in your business, but it provides a long-term value and can be acquired or separated from the company are known as Identifiable Intangible Assets. Usually these kinds of assets are generated from contractual agreements with other companies, or governments.<\/p>\n Examples of Identifiable Intangible Assets are:<\/p>\n Imagine you invent a technology, then A patent grants you exclusive right to use, sell or manufacture it for a specific period of time. Patents prevent others from copying your technology which ultimately gives you a unique advantage. Example: A pharmaceutical company holding a patent of a life-saving drug.<\/li>\n Your company\u2019s logo, brand name or even that catchy slogan is known as a trademark. Trademarks can be anything, a symbol, design or a phrase which is legally registered to represent your brand, products or services. Trademarks help your customers to easily identify your products or services and trust your products. Example: The logo of Apple, Google or Nike\u2019s \u201cJust Do It\u201d slogan.<\/li>\n When your company creates some original artistic or literary works (like content of website, codes for the software, music, or write & published a book). Copyrights help you to protect these things from getting copied or distributed without your authorization. Example: Micorosoft having a copyright of Windows Software.<\/li>\n Unidentifiable Intangible Assets can\u2019t be sold, or separated from your business. They can only exist as a part of your business strategy like your goodwill with customers can be changed as you shift your business focus.<\/p>\n Examples of unidentifiable intangible assets are:<\/p>\n When a company acquires another company at a higher price than its fair market value because of its identifiable intangible assets, then it is recognized as Goodwill. Example: If an established local bakery with a loyal customer base is acquired by a larger national chain, the premium price paid by larger national chain is for the bakery’s reputation and customer loyalty in the neighborhood, which will be recorded as goodwill. Check our guide on Goodwill here.<\/b><\/li>\n When your business has a strong relationship with your customer which is not based on any contractual agreement. The value of customer relationships lies in positive word-of-mouth and continued business.<\/li>\n<\/ul>\n While intangible assets lack physical form, tangible assets like Property, Plant and Equipment<\/a> (PPE) are also important for businesses. So, understanding both types of assets can provide you a clear picture of a company’s resources.<\/p>\nWhat are the Types of Intangible Assets?<\/h2>\n
Identifiable Intangible Assets<\/h3>\n
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Patent:<\/b><\/h4>\n
Trademarks:<\/b><\/h4>\n
Copyrights:<\/b><\/h4>\n
Other examples of identifiable intangible assets are:<\/strong><\/h4>\n
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Unidentifiable Intangible Assets
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Goodwill:<\/b><\/h4>\n
Customer Relationship:<\/b><\/h4>\n
Accounting for Intangible Assets<\/h2>\n