Intangible asset

Assets are defined as physical things that have a calculable value such as facilities and equipment. Assets are anything for which a monetary value can be fixed, devalued, or used in financial transactions. Assets may be monetary with fixed values in currency or non-monetary with an historical value. Non-monetary assets with historical value would include equipment for transportation of people and goods (examples are trucks and cars, machinery used in moving goods—e.g. forklifts), machinery used in producing or maintaining goods (e.g. hand tools, fabrication machinery, presses, blast furnaces, packaging machinery and other conveyor line equipment, diagnostic equipment), and working or sales space equipment (such as office and lounge area furniture, display cases, lighting fixtures, decorative fixtures, and hardware). Virtually any technological device used in a business.

Intangible assets also have value but are technically not physical things, have no independent market or liquidation value and are not carried on a balance sheet. The GASB Statement No. 51 endorses the following three required characteristics:

• Lack of physical substance (i.e. can not be touched) except when an intangible is integrated in a tangible object (e.g. a CD disc that holds software or customer lists);
• It does not have financial attributes or properties. In other words, while it does have value it has no monetary form (e.g. cash or securities) and does not constitute a claim or right to assets that have monetary form, such as receivables or a prepayment for goods or service;
• The business use or useful life of the intangible asset extends beyond a single financial reporting period.

Examples of intangible assets are, software, trademarks, patents, copyrights, motion picture films, licences, leases, specific development costs, capitalised development cost, customer lists, mortgage servicing rights, brand recognition, customer goodwill and loyalty, reputation, franchise rights, equities, mineral rights, import quotas, fishing and mining rights, marketing rights, purchase options, customer supplier relationships, franchises, securities, and contracts, the staff and their skills, experience, knowledge and creativity.

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Asset

An asset constitutes a resources that a business entity or enterprise controls either through acquisition (e.g. purchased asset) or creation (e.g. produced for sale or use in the company). An asset must also endow future benefits (e.g. sales). To accomplish this the following is essential:

• An asset must be identifiable
• An asset must be controlled by person or enterprise that claims it and has the ability to acquire benefits from the asset
• An asset must endow future benefits (e.g. revenues, cost reduction, enhanced sales).

In the US, intangible assets, according to US Generally Accepted Accounting Principles, are amortized to expense over 5 to 40 years with the exception of goodwill.

IAS 38

IAS 38, International Accounting Standards 38, is the international definition of intangible asset. The IAS 38 was drafted and exposed in September 1998 and became effective on July 1, 1999.

A technical summary of the IAS 38 makes these stipulations

• An intangible asset must be separate or separable from the business or organization claiming it;
• It must be possible to sell, transfer, license, lease or rent, or exchange the asset;
• It is a result, or arises from legal rights such as contractual rights which may or may not be transferable or removed from the entity and other rights and obligations.
• Benefits of a economic nature will accrue in future—there must be some financial or business benefit to the owner of the intangible asset such that at the time of evaluation it retains value at that time;
• It must be possible to fix the value or cost of the intangible asset in a reliable manner

Valuing an intangible asset

The cost of a separately acquired intangible asset is defined by:

• The purchase price of an intangible assets after deducting trade discounts and rebates—including import duties and non-refundable purchase taxes,
• The costs that are directly attributable to preparing an intangible asset for its intended use.