What is an Intangible Asset?

An intangible thing is something the cannot be touched, is tough to describe, or assign an exact value to. The does not have a physical nature or presence however still has actually value.

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In bookkeeping terms, one intangible legacy is a non-physical resource with a financial worth that has been gained by a 3rd party. A firm can develop intangible legacy internally which deserve to be really valuable, but these i will not ~ be well-known on the balance sheet.

Intangible assets which have been gained by a 3rd party are taped on the balance paper at their acquisition price. Purchased intangibles are separated into 2 categories: finite and infinite. In both cases, intangibles are not revalued upwards. Limited intangibles room amortized the same method you would calculate straight-line depreciation of PP&E. Unlimited intangibles space revalued using a present value calculation and also impaired if your value has actually fallen. Because that example, Coca-Cola own the Coca-Cola brand which is approximated to it is in worth over $50 billion. The brand is intangible and also was emerged internally so it’s no recorded anywhere on the balance sheet.


Key learning Points

An intangible asset is a resource controlled by an entity with no physical substance such together licenses, patents and goodwillThey are reported ~ above the balance sheet and amortized over their advantageous economic li2175forals.comGoodwill just arises as the result of a organization acquisition and also represents the dif2175forals.comrence in between what a agency pays to get another agency and the industry value of that target company’s individual assetsIntangible legacy are often very difficult to accurately value and also are regularly valued together the dif2175forals.comrence between the industry value and also net tangible value of the businessAn impairment is one extraordinary loss in the worth of one asset and intangible assets with and also indefinite li2175forals.com must undergo regular impairment tests come accurately report its net publication value

Examples that Intangible Assets

Items the are thought about intangible heritage are detailed below:

· Brand equity (recognition)

· agency reputation

· Goodwill

· Trademarks

· Patents

· pundit property

· client lists

· Domain names

· employed contracts

· Lease agreements

· client relationships

· trade secrets

· Films

· Licenses

· computer system Software

· Permits

· income Quotas

· Franchises

Calculating Intangible Assets

The formula listed below can be of2175forals.comred for calculating the total (on and also off-balance sheet) financial value of a that company intangible assets:

Market value of business – network Tangible Assets worth = Intangible heritage Value

It have to be listed that this formula only provides an approximate value. Sector value is the present value the the company in the share market.

Intangible heritage in the Balance Sheet

The worth of tangible and intangible assets room reported on the that company balance sheet.

The complying with extract is taken indigenous the balance sheet of the Coca Cola agency showing the that company assets with comparative amounts for 2018 and also 2017.

*

The Coca-Cola firm – Extract from Balance paper 2019

As checked out above, the worth of Coca Cola’s intangible assets has increased to $17,270m (2018) from $16,636m (2017).

Impairment

Impairment means ‘damaged’ or ‘spoiled’. Follow to the IASB, an intangible asset through a finite advantageous li2175forals.com is amortized and also should undergo special needs testing regularly. Moreover, an intangible heritage that has actually an indefinite valuable li2175forals.com is no amortized but is tested every year for impairment. As soon as the intangible heritage is disposed of, the obtain or lose on handle is had in the earnings statement.

Where the carrying value that goodwill cannot be recovered with sale or use, it is claimed to be impaired. The goodwill is impaired as soon as the organization will not have the ability to recover the amount taped in the this firm balance sheet, either through use or through a sale. In conclusion, the asset worth in the balance sheet must be reduced.

If the agency believes that handicap may have taken place, an special needs review must be conducted. It requires comparing the net publication value v the cash-generating ability of the asset. If the review shows that there has been an handicap of the videotaped net publication value, the ns in asset worth (reduced) results in an cost in the income statement.

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Other Resources

The International audit Standards board (IASB) is an independent, private-sector body that develops and also approves the international Financial Reporting criter (IFRS). The IASB operates under the monitor of the IFRS Foundation.