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.
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.
InvestingIntangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
InvestingAmortization is important to account for intangible assets. Read to find out more about amortization.
InsightsResearch and development expenses are the expenses associated with the research and development of a company’s goods or services.
InvestingInvestors take note: companies that cut research and development are in danger of saving today but losing big tomorrow.
InvestingYour net worth can be calculated with a simple equation.
InvestingAmortization occurs when an asset’s value decreases over time, usually over its estimated useful life.
Managing WealthIntangible assets represent potential revenue. Take an intangible asset like brand recognition: There is value in people remembering your company and then wanting to buy its products.
TradingLearn how to analyze earnings sustainability - an important part of making sound investments.
Investing"Goodwill" is a broad category for non-physical assets that are impossible to separate from the business itself, whereas "intangible assets" are individually identifiable and can be sold separately ...
Managing WealthTangible assets are physical assets such as land, vehicles or equipment.