Intangible assets

Definition

Intangible assets are non-physical assets that provide economic benefits to a business, such as patents, trademarks, and goodwill. Unlike tangible assets, they lack physical substance but can be crucial for a company's long-term success.

5 Must Know Facts For Your Next Test

1. Intangible assets are recorded on the balance sheet under long-term assets.
2. They are amortized over their useful life unless they have an indefinite lifespan.
3. Goodwill is an intangible asset that arises when one company acquires another for more than the fair value of its net identifiable assets.
4. Intangible assets can be internally generated or acquired from external sources.
5. Accounting standards require regular impairment tests to ensure that the carrying amount of intangible assets does not exceed their recoverable amount.

Review Questions

• How are intangible assets different from tangible assets?
• What financial statement includes intangible assets and where are they listed?
• Why is it necessary to perform impairment tests on intangible assets?

Related terms

Amortization:

The process of gradually writing off the initial cost of an intangible asset over its useful life.

Goodwill:

An intangible asset that represents the excess purchase price paid over the fair value of an acquired company's net identifiable assets.

Impairment:

A permanent reduction in the value of an asset when its market value drops below its book value.