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A quick guide to intangibles
Intangibles can pose unique challenges to accountants, so it’s vital to be familiar with the basics
A quick guide to intangibles
Intangibles can pose unique challenges to accountants, so it’s vital to be familiar with the basics
Intangible assets are assets that have no physical form. They cannot be held or manipulated, but nonetheless are important to businesses and, like all assets, are expected to generate economic returns for the company over time. Common examples of intangible assets are goodwill, brands and intellectual property. IAS 38 Intangible Assets and FRS 102 are the accounting standards that set out the criteria for recognising and measuring intangible assets and requires disclosures about them, and members should refer to these standards when dealing with intangible assets.
EXAMPLE
Coca-Cola’s brand
A business like Coca-Cola wouldn’t be nearly as successful if not for the money made through brand recognition. Although brand recognition is not a physical asset that can be seen or touched, it can have a meaningful impact on sales.
Walk me through it
Intangible assets are generally considered long-term, whose value changes over time. They can be divided into two categories:
Indefinite: This type of intangible asset stays with the holder as long as it continues to operate, such as a brand name.
Definite: This type is restricted to a limited time. A legal agreement to operate under another company’s patent with no plans of extending the agreement is considered a definite intangible asset.
It’s important to note businesses can both create or acquire intangible assets.
Common challenges
Measurement and valuation are an inherently difficult element of dealing with intangible assets. After recognition of intangible asset in the first instance, there are generally two methods for measuring intangible assets:
Cost model: Under this model, the intangible asset is measured at cost less amortisation less accumulated impairment losses
Revaluation model: Using this method, an intangible asset is carried at a revalued amount which is its fair value at the date of the revaluation less subsequent amortisation and subsequent impairment losses.
Key takeaways
• An intangible asset is an asset that is not physical in nature, such as a patent, brand, trademark, or copyright;
• Businesses can create or acquire intangible assets;
• An intangible asset can be considered indefinite or definite, like a legal agreement or contract;
• There are two methods for treating intangible assets – the cost model and the revaluation model.
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