What Are Intangible Assets? Examples and How to Value

Intangible Asset

Investopedia / Jessica Olah

What Is an Intangible Asset?

An intangible asset is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets. Intangible assets exist in opposition to tangible assets, which include land, vehicles, equipment, and inventory.

Additionally, financial assets such as stocks and bonds, which derive their value from contractual claims, are considered tangible assets.


What are Intangible Assets?

Key Takeaways

  • An intangible asset is an asset that is not physical in nature, such as a patent, brand, trademark, or copyright.
  • Businesses can create or acquire intangible assets.
  • An intangible asset can be considered indefinite (a brand name, for example) or definite, like a legal agreement or contract.
  • Intangible assets created by a company do not appear on the balance sheet and have no recorded book value. 

Understanding an Intangible Asset

An intangible asset can be classified as either indefinite or definite. A company's brand name is considered an indefinite intangible asset because it stays with the company for as long as it continues operations. An example of a definite intangible asset would be a legal agreement to operate under another company's patent, with no plans of extending the agreement. The agreement thus has a limited life and is classified as a definite asset.

While an intangible asset doesn't have the obvious physical value of a factory or equipment, it can prove valuable for a firm and be critical to its long-term success or failure.

For example, a business such as Coca-Cola wouldn't be nearly as successful if it not for the money made through brand recognition. Although brand recognition is not a physical asset that can be seen or touched, it can have a meaningful impact on generating sales.

Valuing Intangible Assets 

Businesses can create or acquire intangible assets. For example, a business may create a mailing list of clients or establish a patent. If a business creates an intangible asset, it can write off the expenses from the process, such as filing the patent application, hiring a lawyer, and paying other related costs.

In addition, all the expenses along the way of creating the intangible asset are expensed. However, intangible assets created by a company do not appear on the balance sheet and have no recorded book value. Because of this, when a company is purchased, often the purchase price is above the book value of assets on the balance sheet. The purchasing company records the premium paid as an intangible asset on its balance sheet.

Example of Intangible Assets

Intangible assets only appear on the balance sheet if they have been acquired. If Company ABC purchases a patent from Company XYZ for an agreed-upon amount of $1 billion, then Company ABC would record a transaction for $1 billion in intangible assets that would appear under long-term assets.

The $1-billion asset would then be written off over a number of years via amortization. Indefinite life intangible assets, such as goodwill, are not amortized. Rather, these assets are assessed each year for impairment, which is when the carrying value exceeds the asset's fair value.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Shashin Shah. “Study Guide for 2019 CIMA Exam,” Page 87. John Wiley & Sons, 2019.

  2. The International Financial Reporting Standards Foundation. “IAS 38 Intangible Assets.”

  3. PricewaterhouseCoopers. “Financial Reporting in the Power and Utilities Industry: International Financial Reporting Standards,” Page 25.

  4. The Coca-Cola Company. "Who We Are."

  5. Internal Revenue Service. “Business Expenses: For Use in Preparing 2021 Returns,” Page 33.

  6. The University of Minnesota. “Financial Accounting: 11.2 the Balance Sheet Reporting of Intangible Assets,” The University of Minnesota Libraries Publishing, 2012.