Intangible Assets Meaning ? Example, Types Intangible Assets

Are you the same as many small companies? You reckon for company assets which you can easily view, feel and touch. But what of the things of value which isn’t physical? Are you depreciating your business by overlooking your intangible assets? What are intangible assets?

What Are Intangible Assets?

An intangible asset is that which you cannot feel or touch or we can say that which is not physical in nature. Brand recognition, Goodwill, and intellectual property like trademarks, patents, and copyrights, these are all intangible assets.

Intangible assets are all the components associating with a company enterprise that prevails after the financial and tangible assets have been determined. Their presence is reliant on the existence or the presumption of profits.

Do you now understand intangible assets meaning ? No, let’s take an example for intangible assets to make it more clearly for you.

Intangible Assets Example

Intangible assets will only arise on the balance sheet when they have been collected. Suppose if Company ABC buys copyright from Company XYZ for a stipulatory cost of $1 billion, later Company ABC register a trade in intangible assets for $1 billion that would come beneath long-term assets.

Then these $1 billion assets get signed off over many years through amortization. Infinite being intangible assets are as goodwill, which is not amortized. Despite this, these assets are evaluated every year for impairment that is when the carrying amount surpasses the asset’s true value.

Also Read :

What are Current Assets ? Formula and Example of Current Assets ?

Define Working Capital ? Example, Importance And Concept

Main Objectives For Accounting

Petty Cash Book : Definition, Types, Format and Example

Types of Intangible Assets (List)

Let’s get a look at some of the following common types of Intangible assets:

Goodwill

This type of intangible asset is identified while one company takes another company. Goodwill meets the purchase value of the company by the buying company minus the cost of the remaining assets of the acquired company. It depicts the companies reputation of a company.

Let’s assume A Ltd. takes off B Ltd. over the $ 10 million. And at the point of acquisition, the true worth of the acquired assets of B Ltd is $ 7 million. The distinction between the purchase cost of $ 10 million spent by A Ltd. also the $ 7 million pure fair amount of the assets of B Ltd. is the goodwill’s cost which costs to $ 3 million.

Franchise Agreements

Another type of intangible asset is the Franchise agreement that gives the business a legal right to work by using another company name or trade a product or service produced by some other company. These Franchise agreements are categorized as intangible assets because the company owners get monetary profits with the guidance of these intangible assets.

For instance, many McDonald’s, KFC, Dominos, Subway, etc., and many other fast food restaurants work by utilizing a franchise system. The franchisor gives a different quantity of independence to the franchisees to utilize the name of the brand and help from the franchisor’s great marketing.

Patents

Did you ever hear about the patent? Yes, you may, but many of you don’t know about it. It is one out of different intangible assets that gives a company the independent power to produce, sell or practice a particular invention. In this, a company can buy a patent from some other company or can create a new product and get a patent for it.

Copyrights

Copyright gives an unrestricted right to the company to generate and sell a magazine, book, software, journal, etc. Copyright is one of the intangible assets applied to achieve legal security by stopping others from copying or distributing a work of authorship.

Trademarks

A trademark is also an intangible asset, which legitimately stops others from utilizing your company’s logo, name, or other branding details. It is a symbol, design, or logo applied in association with a distinct product or a company.

Licenses

A licensor can allow a licensee to apply for a copyright, trademark, or patent by a license in a swap for free of cost. Such licenses normally have set course efficacy, and may also place geographic legality or limitations. Intellectual property licensing, like franchising, transfer of technology, and publication rights, are extremely valuable in today’s business. Outrage of the license names by the licensee or minor third party the force is also an illegal and punishable crime beneath the law.

Broadcast Rights

Broadcast rights allow a reporting company to promote or deliver products or exercises of a sales party on media like television, radio, or the internet. The broadcaster funds a decided price over a fixed period for these rights. These agreements are directed to restoration after get expire.

For example, broadcasts of tennis or football matches on television, or shows or movies on the internet. These uses of Broadcast rights n the present day.

Government Grants

Government grants are a crucial form of intangible asset. To encourage specific business activity or improve business activity in a particular area, the government implements several grants and financial help to encourage companies to retain in that activity or field.

One thing to note among such grants is that they should be identified and appraised only when the company takes these advantages. Further, such grants should not have disrupted all the terms and conditions and should also be accurate at the moment of sale.

Non-competition Agreement

A non-compete contract is an agreement among two parties that prevents one party from operating in a certain field or becoming a competitor. Such agreements are normally for a determined period. Such contracts may be made to preserve one’s store or goods and are lawfully binding.

A non-compete agreement is really credible in that case, where only two or three members are present in the market. Therefore, these agreements are regarded as an important intangible asset for any firm.

Internet Domain Names

Internet domain names assist to know various resources such as a network, computer, or service. They transform the multiple numbers of resources into simply recognizable names that are simple to remember. They signify the control or ownership of a valuable resource, and therefore, used as an intangible asset for a firm.

What Are The Basic Differences Between Tangible And Intangible Assets?

Promptly, you understand what these two kinds of assets are let’s get a good aspect at the differences between tangible and intangible assets to understand them better.

Form

The primary difference between tangible and intangible assets is in their form. Tangible assets are in a physical form, although intangible assets exist only on paper and do not have any physical attributes.

Value

Tangible assets have a certain monetary value attached to them. Meantime, intangible assets have no such finite value. For example, the price of a tangible asset such as a vehicle has a limited monetary value. Nevertheless, the value of an intangible asset like a trademark or patent is not limited.

Determination of value

Proceeding from the former point, ascertaining the worth of a tangible asset is quite simple. For instance, to ascertain the price of a tangible asset such as a mobile phone, all you require to do is find out the value of like mobile phone. However, determining the worth of an intangible asset such as a trademark or patent is very difficult because intangible assets may not ever be accessible in the market.

Life span

Tangible assets ordinarily have a set lifetime after which they may cease to function or even cease to exist. For example, tangible assets such as computer equipment or laptops can only function for a definite amount of time. Thus, raw materials, as well as manufacturing company inventory, cease to exist, when they are used in the manufacturing method for the composition of finished goods. However, with intangible assets, there is no existence amalgamated with them. As they are only on paper, they enjoy an almost infinite lifespan and do not terminate.

Depreciation

Another difference between tangible and intangible assets that companies are considering, i.e., tangible assets are depreciated, whereas intangible assets are amortized. Depreciation is the method of accounting for the reduction in the price of a tangible asset due to wear and tear over a period of time. Amortization is the method of increasing the worth of an intangible asset over a while.

Liquidation

As the worth of a tangible asset can be easily decided, it is very simple to convert such an asset. But along with intangible assets, the liquidation method is hard because of the non-availability of statistics to ascertain their significance. Moreover, not all intangible assets need to utilize by a different company. For instance, consider goodwill or client loyalty. It makes liquidation even more difficult. 

Contra Entry : Meaning, Types, Examples of Contra Entry

Trading Account : Format for Trading Account

Paying Banker : Duties and Rights of Paying Banker

Receipt and Payment Account : Types, Format

Conclusion

Intangible assets absent physical matter, but they hold worth because of their long-term interests, exclusive advantage, and rights they contribute to a business. Similar to other assets, businesses consider intangible assets only in the balance sheet. Though, the value of intangible assets is systematically designated to the account through the valuable life of the asset or its legal life no matter which is less.