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Intangible Assets

Intangible assets are defined as a category of assets that do not possess a physical existence. In other words,,,,,

Intangible assets are defined as a category of assets that do not possess a physical existence. In other words, intangible assets cannot be felt or touched. The intangible assets although devoid of any physical presence, work towards generating revenue for the business.

  • These assets can be created or can be acquired by the means of purchasing from a third party.
  • Valuation of intangible assets is difficult and they also provide unpredictable future benefits.
  • These assets are usually recorded at the cost of original purchase and are not adjusted over time. They appear on the balance sheet only if intangible assets are acquired.
  • These assets cannot be destroyed by fire, natural calamities like flood, etc, but they can be destroyed under certain circumstances.
Types of Intangible Assets
  • Identifiable intangible assets: The identifiable intangible assets are referred to as those assets that can be sold by the business and can also be separated from the business. The example of such intangible assets are trademark, patent, copyrights, etc.
  • Unidentifiable intangible assets: The unidentifiable intangible assets are referred to as those assets that cannot be physically separated from the business. The example of such an asset is goodwill.
Intangible assets: characteristics
  • Identifiable :
    • Easily distinguished from goodwill to be identifiable.
    • If the firm could rent, sell, trade, or distribute the asset’s specific future economic benefits without trading future economic benefits derived from other assets employed in the same revenue-generating activity, the asset is separable.
  • Controllable :
    • Restrict others’ access to such economic benefits.
    • The laws give companies control over future earnings from an intangible asset.
    • These are legal rights that can be enforced in a court of law.
    • However, just because a company’s right is legally enforceable does not mean they control the item. 
  • Capability to generate future economic benefits:
    • It can assist your company in several ways in the future.
    • This could be revenue via the sale of goods or services, cost savings, or other incentives from the firm’s asset use are examples of future economic benefits arising from an intangible asset.
    • Example : utilising intellectual property in a manufacturing process may lower future production costs rather than enhance future income.

Intangible assets examples 

1) Goodwill 
  • Goodwill is the most prevalent type of intangible.
  • In general, it is the premium paid for the purchase of a business to gain market power. It has an infinite lifespan and does not need to be amortised over time.
2) Contractual Agreement 
  • Contract-based intangible assets represent the value of rights deriving from contractual arrangements.
  • They meet the contractual legal condition, such arrangements are easily identified.
  • Any contacts listed below may be categorised as intangible if they are estimated to result in future cash flow or intangible liability for the contracting party.
  1. Licence agreements
  2. Supply agreements
  3. Exploration rights
  4. Use rights
  5. Lease agreements
3) Patents 
  • A company or individual can use patents for 20 years.
  • A patent is a combination of rights granted by a nation to an inventor for a limited period instead of detailed disclosure of an invention.
  • They contribute to the company’s cash flows by enhancing the products made by the concern and the royalty income when licensed out.
4) Copyrights 
  • Copyrights safeguard plays, literary works, musical works, photos, photographs, and audiovisual materials in general.
  • On granting permission for the use of copyright property, the copyright owner gets paid a royalty or payment.
  • Because a creative asset has no commercial counterpart, valuing them is particularly difficult.
5) Trademarks 
  • A trademark is a distinctive sign, design, or expression that distinguishes a particular source’s product or services from those of others.
  • A trademark is the only way to identify the commercial origins of a product.
  • It improves cash flow by raising sales volume or charging the owner a premium for the brand.

Also Read : ‘Lightweight’ payments system

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