Intangible assets are identifiable non-monetary resources that have no physical substance but provide the company controlling them with a benefit and, as a result, have a higher degree of uncertainty regarding future benefits. When intangible assets are acquired through an arm's length transaction, they are recorded at cost. SFAS classifies intangible assets in different categories and provides a guideline in regards to their expense or capitalization.

1. Research and development costs

  • SFAS requires virtually all R&D costs to be expensed in the period they were incurred and the amount to be disclosed.
  • The main exception to the expensing rule is contract R&D performed for unrelated entities.

2. Software development

  • SFAS requires all costs that were incurred in order to establish technological and/or economic feasibility of software to be viewed as R&D costs and expensed as they are incurred.
  • ONCE economic feasibility has been established, subsequent costs can be capitalized (but are not required to be) as part of product inventory and amortized based on product revenues or on sales-per-license basis.

Other Intangibles

1. Patents and copyrights

  • All costs in developing these are expensed in conformity with the treatment of R&D costs (legal fees incurred in registering can be capitalized).
  • Full acquisition costs are capitalized when purchased from other entities.

2. Brands and trademarks

  • All costs in developing a brand or trademark are expensed in conformity with treatment of R&D costs (legal fees incurred in registering can be capitalized).
  • Full acquisition costs are capitalized when brands and trademarks are purchased from other entities.


Depreciation

Related Articles
  1. Investing

    Goodwill vs Other Intangible Assets: What's the Difference?

    "Intangible" assets don't possess physical substance. Yet they are quanitfiable, and of great importance to any business.
  2. Investing

    Explaining Amortization In The Balance Sheet

    Amortization is important to account for intangible assets. Read to find out more about amortization.
  3. Small Business

    Understanding Research and Development (R&D) Expenses

    Research and development expenses are the expenses associated with the research and development of a company’s goods or services.
  4. Managing Wealth

    How to Calculate Your Tangible Net Worth

    Your net worth can be calculated with a simple equation.
  5. Managing Wealth

    Comparing Tangible and Intangible Assets

    Tangible assets are physical assets such as land, vehicles or equipment.
  6. Investing

    Explaining Tangible Net Worth

    Tangible net worth is determined by taking total assets, then subtracting liabilities and intangible assets.
  7. Insights

    And The King of R&D Spending Is

    When it comes to investing in other countries, knowing how much is being spent on research and development, and where it's be spent, is important for any investor.
  8. Investing

    Explaining Capitalized Cost

    A capitalized cost is an expense associated with a fixed asset that is added to the basis of that asset and expensed over its depreciable life.
  9. Investing

    R&D Spending And Profitability: What's The Link?

    Return on research capital (RORC), can help investors measure how much profit R&D spending actually generates.
  10. Managing Wealth

    Explaining Financial Assets

    A financial asset is intangible property that represents a claim on ownership of an entity or contractual rights to future payments.
Frequently Asked Questions
  1. What are Common Examples of Monopolistic Markets?

    Discover what causes real instances of market monopoly, how it persists and where monopoly privilege is most common in the ...
  2. What is the gold standard?

    The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold, but ...
  3. What's the most expensive stock of all time?

    The most expensive publicly traded stock of all time is Warren Buffett’s Berkshire Hathaway.
  4. What is a "socially responsible" mutual fund?

    As the name suggests, socially responsible mutual funds invest exclusively in socially responsible investments.
Trading Center