Classification of Natural Resource Assets
Intangible assets are identifiable non-monetary resources that have no physical substance but provide the company controlling them with a benefit. Intangible assets can be internally created or acquired from a third party. If intangible assets are acquired in an arm's length transaction, their recognition and measurement will be similar to those of tangible assets. Internally developed intangible assets are accounted for in a wide range of ways. Intangible assets include research and development costs, patents, trademarks and goodwill. Intangible assets are depreciated over their estimated life and they are done so by the use the straight-line depreciation method. Intangible assets cannot have an estimated life of more then 40 years.

Unlike other intangible assets, goodwill is no longer an asset that can be depreciated. As of July 2001, the Financial Accounting Standards Board (FASB) adopted the Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which sets new rules for goodwill accounting. SFAS 142 eliminates goodwill amortization and instead requires companies to identify reporting units and perform goodwill impairment tests.

Example
Company ABC acquires a company for $20m. The acquired company's fair market value was $18m. ABC has also acquired a patent for $2m that has an estimated remaining life of 10 years.

Journal entries:

Effects of Capitalizing vs. Expensing

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

    Goodwill and Intangible Assets: One And The Same?

    "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 ...
  3. Managing Wealth

    How to Calculate Your Tangible Net Worth

    You can calculate your tangible net worth with a simple equation.
  4. Investing

    Explaining Amortization In The Balance Sheet

    Amortization is important to account for intangible assets. Read to find out more about amortization.
  5. Investing

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  6. Investing

    Explaining Amortization In The Balance Sheet

    Amortization occurs when an asset’s value decreases over time, usually over its estimated useful life.
  7. Investing

    How To Calculate Goodwill

    Goodwill is an intangible, but it is still possible to effectively calculate or estimate goodwill for a company.
  8. Investing

    How Does Goodwill Affect Stock Prices?

    “If a business does well, the stock eventually follows.” - Warren Buffett
  9. Investing

    Explaining Tangible Net Worth

    Tangible net worth is determined by taking total assets, then subtracting liabilities and intangible assets.
Frequently Asked Questions
  1. I'm about to retire. If I pay off my mortgage with after-tax money I have saved, I can save 6.5%. Should I do this?

    Only you and your financial advisor, family, accountant, etc. can answer the "should I?" question because there are many ...
  2. My wife and I both converted our Traditional IRAs to Roth IRAs over a decade ago and have invested the maximum allowed each year since. We're buying our first home soon. Do we both qualify for one-time, tax-free, $10,000 distributions?

    You and your spouse each qualify for a penalty-free distribution of up to $10,000 for the purchase, acquisition or construction ...
  3. Is a Thrift Savings Plan (TSP) a qualified retirement plan?

    Take advantage of the government's retirement plan for employees with the Thrift Savings Plan. As with a 401(k), contributions ...
  4. Who manages the assets in a Roth 401(k) account?

    Learn how to personally manage the assets in your Roth 401(k) plan and determine the best options available to help meet ...
Trading Center