|
Information > Financial Terms > This page Intangible Assets Special rights, grants, privileges, and advantages possessed by a business that can benefit future operations by contributing to the enterprise's earning power. Intangible assets do not possess physical substance. Intangible assets include patents, copyrights, trademarks, trade names, franchises, licenses, royalties, formulas, processes, organization costs, leasehold and leasehold improvements, and goodwill. Intangible assets may be acquired from other enterprises or individuals or developed by a company. They can be classified as unidentifiable and identifiable assets. An unidentifiable intangible is one that cannot exist independent of the business as a whole. Goodwill and organization costs are unidentifiable intangible assets. Identifiable intangibles have a separate identity and existence of their own independent of the business as a whole. Patents, copyrights, and medical patient charts are examples of identifiable intangible assets. If acquired by purchase, the intangible item is recognized as an asset. If developed by the enterprise, the research and development costs are expenses when incurred. The life of an intangible asset may be determinable if fixed by law, regulation, agreement, contract, or by the nature of the asset. The cost of an intangible asset having a determinable life should be amortized in a rational and systematic manner over the term of its existence, but not to exceed 40 years. If the life of the intangible asset is indeterminate, as might be the case for goodwill and trade names, the cost of the assets should be written off over a period of years established by management, but not to exceed 40 years. The straight-line method of amortization should be used to write off the cost of intangible assets over future periods to be benefited by the assets unless another systematic method is considered more relevant and reliable. A patent has a legal life of 17 years. Copyrights are granted for a period of years covering the life of the creator of the copyright plus an additional 50 years. Franchises may be granted for a limited or unlimited period. Organization costs are incurred during the formation of a corporation and prior to income-producing operations. Such costs include expenditures relating to promoters, attorneys, accountants, underwriters' charges as well as registration and listing fees and printing costs associated with the issuance of securities. Such costs should be written off over a period of time not to exceed 40 years. Leasehold improvements should be written off over the term of the lease. Back to Information |