Intangible assets are those assets that are not typically physical in nature and have no material substance. Almost all intangible assets will have no physical form but will provide value to businesses and their owners.
Intangible assets can be found in all areas of a business from technology to customer relationships, and exist alongside tangible assets (land, vehicles, equipment and inventory). Financial assets such as stock and bonds can also be referred to as tangible assets.
Key takeaways from this section:
- Intangible assets are assets that are not physical in nature but are still of value and importance to businesses.
- They can include aspects such as a patent, brand, trademark, copyright etc.
- Intangible assets that are created by a company will not appear on a balance sheet and have no recorded book value.
- Businesses can either create or acquire intangible assets, and they can be considered both definite and indefinite.
Understanding intangible assets
Intangible assets, in most cases, do not have a physical component. They can be found in all areas of a business; in technology as technical manuals, computer software, engineering processes, or in customer relationships, brand recognition, business processes, trade secrets, trademarks, marketing campaigns etc.
Intangible assets are of high value to a business and can be used to create profits, increase sales value, and bring income into your business. Intangible assets can be classified as either indefinite or definite. Aspects such as a company’s brand is considered to be an indefinite intangible asset as it stays with the company for as long as it operates. On the other hand, a definite intangible asset would something with a limited life, such as a legal agreement.
Intangible assets can prove to be very valuable for a business and can help to actually grow a business despite not having a physical component to them.
Intangible Assets FAQs
What exactly is an intangible asset?
An intangible asset is defined as an asset that has no physical form such as goodwill, brand recognition, copyrights, patents, trademarks etc. However, despite the fact that these assets do not have a physical component they are still of high value to a business. Intangible assets are valuable for a firm and can be critical to its long-term success or failure.
What is the difference between an indefinite and a definite intangible asset?
The main difference between indefinite and definite intangible assets is that indefinite assets are those that stay with the company for as long as it operates such as the company name. Definite assets on the other hand are those assets that have a shorter life, for example a legal agreement to operate under another company’s patent that has no plans for extension.
How are intangible assets valued?
As it is difficult to value assets that don’t exactly have a physical form. Different types of intangible assets will be valued differently, for example most intellectual property is valued based on the income it produces whilst the software that is developed and used is valued primarily on the cost to produce it. A third approach is market valuation which essentially is based on transactions that involve intangible assets exchanged in public trading.
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