What is Intangible Assets
Intangible assets are intangible assets that bring value to a company. It has fixed assets that are used to generate revenue and include patents, trademarks, copyrights, goodwill, and intellectual property. Intangible assets have a value comparable to objects that can be seen or heard, such as a building or an instrument, that can be touched and seen.
Intangible assets are not retrospective but represent things like a company’s reputation, customer relationships, or proprietary technology. While intangible property has no intangibles, it often retains its role as the ultimate agent of communicative and collective value.
Tangible and intangible assets
Tangible assets and intangible assets are the two lions of the page used to understand the assets of a company. Tangible assets are things we see and do, such as a building or an instrument, that have value in that they can be used to direct the company’s business and operations. Intangible assets refer to things that are
not tangible, such as patents, trademarks, copyrights, goodwill, and intellectual property. These intangible assets are more important to companies in creating direction and value than can be understood with things like literary contributions, customer relationships, or valuation techniques.
difference between tangible and intangible assets
Tangible Assets: These are actual assets that you can touch and see. Examples are buildings, equipment, tools, and land. Clearing assets are a physical hosiery and a company’s operations are used as company operations or are income generating. They are easier to describe in terms of value and worth because of their obvious physical quality.
Intangible Assets: These are intangible assets that do not have a physical footprint but hold value for a company. Examples include patents, trademarks, copyrights, goodwill, and intellectual property. Intangible assets can be easily measured to represent value and create value such as market demand, innovation, brand identity, etc., which can be subjective and unobservable.
intangible assets and tangible assets examples
Tangible assets examples:
- Buildings (like power plants and shops)
- Instruments (eg instrumental instruments)
- Means (eg vehicles, watercraft)
- Land and soil
Intangible assets examples:
- Patents (eg, the right to a particular technology)
- Trademarks (eg, Coca-Cola’s trademark)
- Copyright (for example, the right to a song or film)
- Goodwill (eg, the company’s silver name and reputation)
depreciation on intangible assets
Suppose a company purchases a patent for a new technology for ₹10,00,000. The patent has a legal life of 20 years. The company expects the technology to be relevant for about 10 years before becoming obsolete.
To calculate the annual depreciation (amortization) expense, you can use the straight-line method:
- Calculate Annual Amortization Expense: Annual Amortization Expense=Cost of PatentUseful LifeAnnual Amortization Expense=Useful LifeCost of Patent Annual Amortization Expense=₹10,00,00010=₹1,00,000Annual Amortization Expense=10₹10,00,000=₹1,00,000
- Record Depreciation Expense in the Books: Each year, the company would record a depreciation expense of ₹1,00,000 in its income statement to reflect the portion of the patent’s cost consumed during that year.
- Adjust Book Value: The company would also adjust the carrying value (book value) of the patent on its balance sheet. Since the straight-line method is used, the book value would decrease by ₹1,00,000 each year.
- End of Useful Life: After 10 years, the entire cost of the patent (₹10,00,000) would be amortized, and the patent would have a carrying value of ₹0 on the balance sheet.
amortisation of intangible assets
Cost Capitalization: When a company purchases an intangible asset, it records the cost of the asset on its balance sheet. Instead of accumulating all of the expenses, the company accumulates this cost and records it each year over the asset’s useful life.
Useful Life: The useful life of an intangible asset is the period during which it provides value to the company. This may be dictated by legal rights, contractual terms, technological obsolescence, or other reasons.
Amortization Expense: The Company calculates annual amortization expenses using an accrual method, such as the theoretical principle. In this, the cost of the intangible asset is divided by the useful life.
Enter amortization expense: Every year, the company enters amortization expense in its income statement. This expense represents the portion of the cost of the fixed asset throughout the year that has been incurred during that period.
Maintain book value: The company maintains the transaction value (book value) of the intangible asset on its balance sheet. As the amortization sum is played, the book value decreases each year until each year its value is reduced to zero.