9 examples of intangible assets

Intangible Assets Examples: Meaning, Real-Life Cases & Accounting

Knowing their exact worth helps determine a fair acquisition price and ensures equitable distribution of ownership in the new entity. It also plays a vital role in calculating goodwill and affects how the merged entity’s balance sheet will appear post-transaction. An accurate valuation builds trust between parties and supports smoother integration. They offer value through things like brands, patents, and goodwill. Apple’s intangible assets are focused on unique tech, sleek product designs, and its strong brand.

In accounting, each type of intangible asset is treated specially. Accountants use laws, methods, and checks to track these assets over time. Let’s examine the most important ways companies treat intangible assets in finance and accounting. Although you can’t see them, intangible assets are crucial for a company’s success. They can boost profits, make you stand out in the market, and increase your worth over time.

The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase. Goodwill is recorded as an intangible asset on the acquiring company’s balance sheet under the long-term assets account. Goodwill is considered an intangible (or non-current) asset because it is not a physical asset like buildings or equipment.

Cost Approach

• These professionals use their market experience, industry data, and financial reports to arrive at a fair value.
• Distinctive symbols, logos, words, or other identifiers used to distinguish a company’s products or services from others.
• Each type safeguards unique aspects of a business, enhancing competitive advantage.

For today’s commerce entrepreneurs, intangible assets often represent the primary source of competitive advantage. While competitors can replicate products, manufacturing processes, and even store layouts, they cannot easily duplicate your brand’s reputation, customer relationships, or proprietary knowledge. Intangible fixed assets are dealt with under IAS 38 in both the Financial Reporting (FR) and Strategic Business Reporting (SBR) papers.

What is the difference between tangible and intangible equity?

• It is fair to say that the rules of the standard may fail to capture some of the key value in modern entities.
• Overall, a company’s ability to give accurate valuations to its intangible assets is a good indicator of its ability to manage the business successfully.
• He is the former editor of the Journal of Learning Development in Higher Education and holds a PhD in Education from ACU.
• An entity shall apply those amendments for annual periods beginning on or after 1 January 2009.
• Goodwill in accounting is an intangible asset that arises when a buyer acquires an existing business.

Paragraphs 69, 70 and 98 were amended and paragraph 69A was added by Improvements to IFRSs issued in May 2008. If an entity applies the amendments for an earlier period it shall disclose that fact. The fact that an active market no longer exists for a revalued intangible asset may indicate that the asset may be impaired and that it needs to be tested in accordance with IAS 36. Expenditure on an intangible item that was initially recognised as an expense shall not be recognised as part of the cost of an intangible asset at a later date. Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Past expenses not to be recognised as an asset

It is fair to say that the rules of the standard may fail to capture some of the key value in modern entities. The International Accounting Standards Board (IASB) have acknowledged this problem, and it may well be that it is added to its standard-setting agenda in future periods. Similar to the principles of IAS 16 Property, Plant and Equipment there are two major models for accounting for intangible assets. These are the cost model and the revaluation model, and the methods used in the application are very much in line with the IAS 16 methodology. These examples show how intangible assets range from protected IP to operational knowledge to brand awareness and loyalty. Assessing and accounting for these assets is key for accurate valuation.

In accounting, the intangible assets created by the company do not appear on the balance sheet; they have no recorded book value. Other kinds of intangible assets include goodwill, patents, copyrights, etc. However, intangible assets created by a company do not 9 examples of intangible assets appear on the balance sheet and have no recorded book value. Because of this, when a company is purchased, often the purchase price is above the book valueof assets on the balance sheet.

Amortization & Impairment of Intangible Assets

Some intangible assets may be contained in or on a physical substance such as a compact disc (in the case of computer software), legal documentation (in the case of a licence or patent) or film. For example, computer software for a computer‑controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as property, plant and equipment. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset. As intangible assets, goodwill and brand equity play a role in determining the overall worth of a company during valuation or acquisition.

This recipe is not patented but still protected as a trade secret. Coca-Cola is stored in a vault, showing how seriously it protects its asset. The simpler method is to simply deduct the book value from market value, but the issue here is that this constantly changes as the market value of the company fluctuates. Importantly, there’s also a difference between how created versus acquired assets are valued. However, these expenses are important because they represent a future financial benefit for the company, as ultimately they add to earnings. All kind of food franchise which has a business license from the parent company to run the same kind of food business after paying a certain fixed or monthly payment; This is an example of Licensing and Rights.

Disney’s Rights

IAS 23 specifies criteria for the recognition of interest as an element of the cost of an internally generated intangible asset. One or more intangible assets may be acquired in exchange for a non‑monetary asset or assets, or a combination of monetary and non‑monetary assets. The following discussion refers simply to an exchange of one non‑monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an intangible asset is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable.

Manage your business finances in Brixx

The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires specified disclosures about intangible assets. In the financial statements of Res Co, only $1.5m of expenditure could be capitalised, as it is only from 1 July 20X5 that all of the development criteria are met. Even though the asset is likely to generate significant benefit and a total of $5.5m of costs have been incurred as part of research and development, the previously expensed costs cannot be recognised as assets. Even though assets can be recognised for development costs, this is another area of criticism from the financial reporting community.