Intangible assets

Definition

Intangible assets are non-physical assets that have value due to their intellectual, legal, or competitive advantages. Examples include patents, trademarks, copyrights, and brand reputation.

5 Must Know Facts For Your Next Test

1. Intangible assets are critical for determining a company's overall valuation and can significantly impact stock prices.
2. Unlike physical assets, intangible assets are not easily quantifiable but can provide long-term financial benefits.
3. Accounting standards require companies to periodically assess the value of their intangible assets for impairment.
4. Goodwill is a common type of intangible asset that arises when one company acquires another for more than the fair market value of its net tangible and intangible assets.
5. Amortization is used to gradually write off the cost of an intangible asset over its useful life.

Review Questions

• What types of items are considered intangible assets?
• How do intangible assets affect a company's stock valuation?
• Explain the concept of amortization in relation to intangible assets.

Related terms

Tangible Assets: Physical items such as machinery, buildings, and inventory that have measurable value.

Goodwill: An intangible asset representing the excess purchase price paid during an acquisition over the fair market value of acquired net assets.

Impairment: A permanent reduction in the value of an asset below its carrying amount on the balance sheet.