Intangible assets are identifiable, non-monetary assets with no physical substance, according to the International Financial Reporting Standards (IFRS).
Intangible assets, like all assets, are intended to create future economic benefits for the organization. This expectation is for more than one year or one operating cycle as a long-term asset.
Intangible assets, unlike tangible assets like inventories and equipment, do not have a physical form. They are the second-biggest category of long-term assets, behind PP & E, which is the largest.
There are two types of them: identifiable and non-identifiable. Intangible assets that can be separated from other assets and sold by the corporation are known as identifiable intangible assets.
Intellectual property, patents, copyrights, trademarks, and trade names are examples of these assets. Outside of hardware, identifiable intangible assets include software and other computer-related assets.
Intangible assets that can not be physically removed from the company are known as unidentifiable intangible assets. Goodwill is the most prevalent unquantifiable intangible asset.
Internally created goodwill is always expensed and never recorded as an asset, However externally generated goodwill can be recorded as an asset when a company buys or merges with another company and pays more than its fair value, and the difference is recorded as goodwill.
Unlike PP & E, this asset does not depreciate. It is, however, periodically evaluated for impairment. If a corporation believes the value of its goodwill has declined from its reported book value, it will record an impairment loss.
Branding and reputation are another important unquantifiable asset. While a firm can sell its trademarks, logos, and other assets, separating good branding and reputation from a solid company can be challenging.
Nonetheless, the company’s brand awareness and reputation are projected to yield positive financial returns in the future.
Intangible Assets are assets that are not physical.
What is the definition of an intangible asset?
A non-physical asset is referred to as an intangible asset. Intangible assets include goodwill, brand awareness, and intellectual property such as patents, trademarks, and copyrights. Tangible assets, such as land, vehicles, equipment, and inventories, compete with intangible assets.
Financial assets, such as stocks and bonds, are also considered tangible assets because their value is derived from contractual claims.
So it says or determines a patent, brand, trademark, or copyright are examples of intangible assets that are not physical in origin.
- Intangible assets can be created or acquired by businesses.
- Intangible assets can be indeterminate (such as a brand name) or definite (such as a legal agreement or contract).
- Intangible assets are non-financial assets that do not appear on a company’s balance sheet and have no book value.
There are two types of intangible assets: indeterminate and definite. Because it stays with the firm for as long as it operates, a company’s brand name is considered an indefinite intangible asset.
A formal agreement to operate under another company’s patent, with no plans to prolong the agreement, is an example of a definite intangible asset.
As a result, the contract has a finite lifespan and is classified as a definite asset. While an intangible asset lacks the obvious physical worth of a factory or equipment, it can be extremely valuable to a company and crucial to its long-term success.
Coca-Cola, for example, would not be nearly as successful if it weren’t for the money generated by brand recognition. Despite the fact that brand recognition is not a tangible asset that can be seen or touched, it can have a significant impact on sales.