Intangible assets are assets that do not have a physical existence, which means that they cannot be touched. Although intangible assets lack physical presence, they still add value to the business.
What is an Intangible Asset?
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.
Intangible assets are regarded as long term assets that are useful for the business over a period of more than one accounting period. In other words, intangible assets generate revenue for the business across accounting periods.
Intangible 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.
Intangible 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.
Intangible assets cannot be destroyed by fire, natural calamities like flood, etc, but they can be destroyed under certain circumstances
Types of Intangible Assets
The types of intangible assets are as follows
- Identifiable intangible assets
- Unidentifiable 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.
Characteristics of Intangible Assets
The following are the characteristics of intangible assets:
- These assets do not have a physical existence.
- These assets cannot be used as a collateral for obtaining loans for business expansion.
- Intangible assets are amortized (except goodwill) over the useful life of an asset.
This concludes the topic of Intangible Assets, which is an important component of Accountancy for the students of Commerce. For more information, stay tuned to BYJU’S.