Assets are always crucial for businesses of all sizes. Be it a small company or a multinational corporation with various branches, the importance of assets will never fade away. You need to keep an open eye on your assets and their performance if you want to keep the wheel rolling. Apart from fixed and current assets, there are intangible assets as well that carries utmost influence. Although these assets are invisible, they still can turn things on for your company. This article will briefly comprehend intangible assets along with their types and importance for your business. Keep reading to know more!
What are Intangible Assets?
An intangible asset has no physical existence but still is considered of value of a business. The asset has no physical shape or existence and has a long-term value for a business. You might have heard of patent rights, brand recognition and goodwill; all these fall under the category of intangible assets. It is not a material object but has a financial value.
Intangible assets are not too hard to understand. They can be easily differentiated from the rest of the assets when put in simple terms. Following is a detailed breakdown of the term to help you understand it better. Keep rolling!
i) An intangible asset does not have a physical shape or existence.
ii) Patents, trademarks and copyrights are considered intangible assets.
iii) Businesses can either acquire or create these assets.
iv) These assets can either be definite (agreement or a contract) or indefinite (brand name).
v) They do not carry any recorded book value.
Purpose of intangible assets in business:
It is believed that a current asset improves a company’s current worth in numerous ways. Have you ever heard that intangible assets help improve the long-term worth of a company? Well, you just heard that! The purpose of these assets in a business is matchless and hence be managed by expert bookkeeping and accounting firms in Dubai. The following points will prove their importance for your company.
i) Improves company’s worth:
They improve a company’s long-term worth. When compared with current assets that only contribute to the current worth of a company, they are far more important.
ii) They carry value:
They carry an intrinsic value. The value is derived from the sole legal and intellectual rights they can enjoy.
iii) Improves other assets:
When it comes to improving the value of other assets, an intangible asset will help you more than a tangible one.
iv) Helps rebuild the company:
Tangible assets are often destroyed or sold to pay business obligations. Intangible assets can help you rebuilt these assets and make your business running.
What is considered an intangible asset?
The list of items/things that fall under the category of intangible assets is long and comprehensive. Owing to their vast definitive features, these assets are broadly categorized. Following is a list that will help you understand these assets better.
- Goodwill of a company
- Brand equity
- Brand recognition
- Company reputation
- Intellectual property
- Customers list
- Lease agreements
- Clients relationships
- Employment contracts
- Domain name
- Licensing agreements
Types of intangible assets:
These assets are widely discussed on different platforms. Owing to their properties and the importance they carry, they are hard to overlook when managing business activities. Companies should consider hiring expert for smooth accounting operations and recordings. The following are the two types you need to know.
i) Limited-life intangible assets:
As the name suggests, it has a limited life span. As fixed assets are depreciated over the years, intangible assets are amortized. Their value diminishes as they grow old. To make it simpler, a patent only lasts for 17 years. Following assets carry a limited life span.
These assets are amortized over the exact time period they are deemed useful.
ii) Unlimited-life intangible assets:
Unlike limited-life intangible assets, these assets don’t have an expiry date. They will last as long as the business exists. The concept of amortization is replaced here with impairment testing. Unlimited life span intangible assets are tested for impairment on an annual basis.
Trademarks and brand recognition are considered unlimited life intangible assets. These assets must be tested for impairment on an annual basis, according to IRS’s rules. One of the recommendations from the IRS is that trademarks, goodwills and copyrights be amortized every 15 years.
Join hands with experts for smooth accounting operations!
Accounting activities ought to be on the spot. You can’t afford a little mistake as it can ruin the entire cycle. Be it financial reports preparation or bookkeeping activities, you always need an expert to be on your side. Consider joining hands with professional accounting firms for better results!