The intangible assets are the different assets of the company which do not have any physical existence and the same cannot be felt and touched where the different examples of the intangible assets include patents, copyrights, trademark, goodwill, trade names, etc.
Examples of Intangible Assets
The following Intangible Assets example
An intangible asset is something which does not have physical evidence. It usually has a useful life for more than a year. They have significant commercial value. Intangible assets are recorded in the asset section of the balance sheet. When we amortize intangible assets, then the amortized amount needs to be written in the income statement. Intangible assets are not tax deductible hence companies amortize them over their useful life in order to reduce the tax liabilities.
Common Examples of intangible assets include –
Intangible Assets Example#1 – Goodwill
Goodwill happens when one company takes over another company above its fair market value. For example, if company A takes over company B for an amount which is more than the value is of company B then the amount that is leftover is recorded as goodwill in the balance sheet of Company A in the section of Current Assets.
Company A purchases all of the outstanding stock of B for ₹ 5, 000, 00. On the acquisition date, Company A lists the goodwill as a current asset in the balance sheet:
The balance sheet of Company B is as follows:
Company A wouldn’t consider goodwill as a real asset purchased by it in the Balance Sheet.
The fair value of the Assets purchased by company A is 200000 + 500000 – 500000 = 200000. We do not include goodwill as it is not a real asset to be considered.
As Company A has paid an amount of ₹ 5, 000, 00 for its outstanding stocks so company A has to show ₹ 300000 as goodwill in the balance sheet.
Intangible Assets Example#2 – Patents
A patent is a right given to an inventor by a sovereign authority. This grant will eventually provide the patent the rights to the design for a stipulated time frame in return of disclosure of the invention.
US patents are valid for twenty years. Pharmaceutical companies invest a lot in research and development, therefore, they will always want the patent to protect duplication.
The U.S. Patent and Trademark Office majorly takes care of three types of patent applications:
- Plant Patents.
Utility patents cover anyone who invents a new and useful process. For example machine. A design patent is an original design for a manufactured product.
Plant patents will apply to anyone who discovers a plant which is capable of reproduction.
Intangible Assets Example#3 – Copyrights
Copyrights give the right to creative work in order to avoid duplication. Copyright registration provides rights on how and in what conditions the material should be allowed to be used.
Steps to Copyright your Product in the US
- First, determine whether the product that I want to register is eligible for copyright or not. The product must be in a tangible form.
- Then we need to identify the appropriate agency to register the product with. The U.S. Copyright Office/ Writers Guild of America are the copyright office with which the product can be registered.
- Then we need to save the work in an appropriate format if we plan to register it online.
- Lastly, we need to go to the U.S. Copyright Office to register the work.
Intangible Assets Example#4 – Franchises/ Licenses
When a franchisor decides to sell their trademarked product, the franchise gets the right to use it. For example food chains.T he franchisee gets the rights to capitalize on their already established product.
Like the other intangible assets, the franchise rights are put down in the long term asset section of the balance sheet. The amount is equal to the amount with which the initial rights were bought.
As we can see above, the Franchise rights are written down in the asset section of the balance sheet.
Intangible assets are not physical in nature but they create value for the business enterprises. Intangible assets like said has a useful life. The intangible asset is recorded in the balance sheet in the current asset section and is amortized over the useful life of the product.
This has been a guide to Intangible Assets Examples. Here we provide the list of most common intangible assets examples including goodwill, patents, copyrights, franchises. You may learn more about accounting from the following articles –