Intangible Assets Assignment Help
Before discussing about Intangible Asset, We should first understand what’s an asset? The answer to this is an asset is a resource:
- controlled by an enterprise as a result of past events; and
- from which future economic benefits are expected to flow to the enterprise.
- Intangible means not physical in nature, can’t be touched & felt. So the definition of Intangible Asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. These are the long-term resources of an entity, but have no physical existence. They derive their value from intellectual or legal rights and from the value they add to the other assets.
Following are the common examples of intangible assets:-
- Know-how and many more.
An intangible asset can be classified as either
a) indefinite (unlimited-life) or
b) definite (limited-life)
It depends on the specifics of that asset. A company brand name, trademarks etc. are considered to be an indefinite asset, as it stays with the company as long as the company continues operations. However, if a company enters a legal agreement to operate under another company's patent, with no plans of extending the agreement, it would have a limited life and would be classified as a definite asset.
Intangible assets are either acquired in a business combination or developed internally. In case of acquisition in a business combination such assets are recorded at their fair value, while in case of internally generated intangible assets the assets are recognized at the cost incurred in development phase. In relation to the development of internally generated intangible assets there are two phases: research phase and development phase. Research phase includes all activities and costs incurred before the intangible asset is commercially feasible, while the development phase includes all activities and costs incurred after the asset is established to be commercially feasible. All costs in research phase are expensed in the period incurred while costs incurred in development phase are capitalized.
Amortization of Intangible Assets:-
Amortization is the process of writing off a portion of intangible assets over their useful life. It’s same like charging depreciation to tangible assets. Some intangible assets have indefinite or unlimited useful life; such assets are not amortized whereas the assets having definite useful life are amortized over their useful life. Although intangible assets with indefinite life are not amortized, they are periodically tested for impairment. Most of intangible assets with definite life are amortized using straight line method.
Long term value of Intangible Assets:-
While intangible assets don't have the obvious physical value of a factory or equipment, they can prove very valuable for a firm and can be critical to its long-term success or failure. For example, a company such as Coca-Cola wouldn’t be nearly as successful was it not for the high value obtained through its brand-name recognition. Although brand recognition is not a physical asset that can be seen or touched, its positive effects on bottom-line profits can prove extremely valuable to firms such as Coca-Cola, whose brand strength drives global sales year after year.