Intangible assets are typically nonphysical assets used over the long-term.Intangible assets are often intellectual assets.Proper valuation and accounting of intangible assets areoften problematic, due in large part to how intangible assets are handled. Thedifficultyassigning value stems fromthe uncertainty of theirfuture benefits and the difficulty in reliably measuring their costs.Also, the useful life of an intangible asset can be either identifiable or non-identifiable. Most intangible assets are long-term assets meaning they have a useful lifeof more than a year.
Examples of intangible assets that areintellectual propertyinclude:
Intangible assets can alsoinclude internet domain names, service contracts, computer software, blueprints, manuscripts,joint ventures, medical records, and permits. Brand equityis an intangible assetsince the value of a brand is determined by the perception of the company's customers and is not a physical asset.
In short, intangible assets add to a company's possible future worth and can be much more valuable than its tangible assets.
How Intangible Assets Show on the Balance Sheet
Intangible assets are only listed ona company's balance sheet if they are acquired assets and assets with an identifiable value and useful lifespan that can thus be amortized. The accountingguidelines are outlinedin generally accepted accounting principles (GAAP).
An Example of a Balance Sheet:
Apple Inc. (AAPL)
Below is a portion of Apple's balance sheetfrom their 201710K statement.
- Intangible assets comprise Goodwill and Acquired Intangible Assets, net.
- Goodwill was approximately $5.7 billion for Apple in 2017.
- Acquired Intangibles were approximately $2.2 billion for Apple in 2017 (highlighted in blue).
- Intangible assetsare not listed under current assets(in pink) because they are used in the business for more than one accounting period, that is, they have a long-term useful economic life.
:max_bytes(150000):strip_icc()/apple_intangible_assets-5bfd886946e0fb00264a922b "What Method Do You Use to Show Intangible Assets on a Balance Sheet? (1)")
Internally developed intangible assets do not appear as such on a company's balance sheet. Even though an intangible asset such as Apple's logo carries huge name recognition value, it does not appear on the company's balance sheet. The reason for not appearing on the balance sheet isbecause the logo was developed internally and does not have a price that can be used to assign fair market value, as would be the case had the logo been part of the acquisition of another firm.
When intangible assets do have an identifiable value and lifespan, they appear on a company's balance sheet as long-term assets valued according to their purchase prices and amortization schedules.
For example, if a company spent $10,000 to purchase the right to use another company's customer list for a period of 10 years, then $1,000 of the purchase price would be expensed each year, and the value of the customer list license would appear on the balance sheet in year three as $7,000.
Intangible assets with infinite life, such as goodwill, are notamortized systematically. Instead, they are included on the balance sheet, as Apple has done, and periodically reviewed for impairment.
