Intangible asset have three main characteristics

They are identifiable must either be separable from the company (can be sold or transferred), or it arises from a contractual or legal right from which economic benefits will flow to the company.

Intangible asset have three main characteristics

They lack physical existence derive their value from rights and privileges granted to the company using them. They are not monetary assets Monetary assets derive their value from the right (claim) to receive cash or cash equivalents in the future.

Intangible asset - Valuation

Companies record at cost intangibles purchased from another party. Cost includes all acquisition plus expenditures to make the intangible asset ready for its intended use. Typical costs include purchase price, legal fees, and other incidental expenses.

Intangible asset - Amortization

The allocation of the cost of intangible assets in a systematic way is called amortization. Intangible have either a limited (finite) useful life or an indefinite useful life.

Intangible asset - Types

Marketing-related intangible assets Customer-related intangible assets Artistic-related intangible assets Technology-related intangible assets Goodwill

Intangible asset - Types

Marketing-related intangible assets Companies primarily use marketing-related intangible assets in the marketing or promotion of products or services. Examples are trademarks or trade names, newspaper mastheads, Internet domain names, and non-competition agreements.

Intangible asset - Types

Trademark or trade name is a word, phrase, or symbol that distinguishes or identifies a particular company or product. Trade names like MercedesBenz, Pepsi-Cola, Honda, Cadbury Eggs, Wheaties, and Ikea create immediate product identification in our minds, thereby enchancing marketability.

Intangible asset - Types

Under common law, the right to use a trademark or trade name, whether registered or not, rests exclusively with the original user as long as the original user continues to use it.

Intangible asset - Types

Customer-related intangible assets Result from interactions with outside parties. Examples include customer lists, order or production backlogs, and both contractual and noncontractual customer relationships.

Intangible asset - Types

To illustrate, assume that Green Market Inc. Acquires the customer list of a large newspaper for 6,000,000 on January 1, 2011. This customer database includes name, contact information, order history, and demographic information.

Intangible asset - Types

Artistic-related intangible assets Involve ownership rights to plays, literary works, musical works, pictures, photographs, and video and audiovisual material. Copyrights protect these ownership rights.

Intangible asset - Types

A copyright is a governmentgranted right that all authors, painters, musicians, sculptors, and other artists have in their creations and expressions. A copyright is granted for the life of the creator plus 70 years. It gives the owner or heirs the exclusive right to reproduce and sell an artistic or published work. Copyrights are not renewable

Intangible asset - Types

Copyrights can be valuable. In the late 1990s, Walt Disney (USA) faced the loss of its copyright on Mickey Mouse, which could have affected sales of billions of dollars of Mickey-related goods and services (including theme parks). This copyright was so important that Disney and many other big entertainment

Intangible asset - Types

Companies fought all the way to the U.S. Supreme Court- and won an extension of copyrights lives from 50 to 70 years.

Intangible asset - Types

Contract-related intangible assets Represent the value of rights that arise from contractual arrangements. Examples are franchise and licensing agreements, construction permits, broadcast rights, and service or supply contracts.

Intangible asset - Types

Franchise is a contractual arrangement under which the franchisor grants the franchisee the right to sell certain products or services, to use certain trademarks or trade names, or to perform certain functions, usually within designated geographical area.

Intangible asset - Types

We deal with franchises everyday: A Toyota (JPN) dealer, a McDonalds (USA) restaurant, a Gucci (ITA) retail store, and an ABInBev (BEL) Budweiser distributorship are all examples of franchises.

Intangible asset - Types

A municipality (or other governmental body) allows a privately owned company to use public property in performing its services. Examples are the use of public waterways for a ferry service, use of public land for telephone or electric lines, use of phone lines for cable TV, use of city streets for a bus

Intangible asset - Types

Line, or use of the airwaves for radio or TV broadcasting. Such operating rights, obtained through agreements with governmental units or agencies, are frequently referred to as licenses or permits.

Intangible asset - Types

Technology-related intangible assets Related to innovations or technological advances. Examples are patented technology and trade secrets granted by a governmental body.

Intangible asset - Types

In many countries, a patent gives the holder exclusive right to use, manufacture, and sell a product or process for a period of 20 years without interference or infringement by others. Companies such as Merck (USA) and Canon (JPN) were founded on patents and built on the exclusive rights thus granted.

Intangible asset - Types

Goodwill Internally Created Goodwill. Should not be capitalized Purchased Goodwill. Recorded only when an entire business is purchased