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INDEX
Title
Pg. No
1. Introduction & Definition
1
2. Important
2
3. Two types of intangibles
assets
4
4. How does a company acquire
intangible assets?
6
5. How to calculate the value of
intangible assets
8
6. Recording intangible assets
on a balance sheet
10
7. How are intangible assets
disclosed
11

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8. Legally protecting intangible
assets
12
9. Conclusion
14

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1) Introduction of intangible
assets
An intangible asset is a nonphysical long-
term asset that accrues value over time.
These are not just theoretical concepts but
real assets that can significantly impact your
business. Examples include intellectual
property, brand recognition, customer
relationships, and goodwill.

 Definition of intangible
assets
Those assets which cannot be touch, feel,
and see are called intangible assets. In other
words, all those assets which don’t have any
physical existence are known as intangible
assets.
Example of intangible assets:
 Goodwill
 Patent
 Trade Marks
 Copyright
 Computer
Software

1
  Business Name

2) Important of Intangible
Assets.
Intangible assets are very important,
particularly in modern economies. These
assets, which are non-physical but hold
substantial value, often represent a
significant part of a company’s total
worth.
1) Competitive Advantage.
Intangible assets such as patents,
trademarks, and copyrights provide
businesses with legal protection for
their innovations and brand identity,
helping them maintain a competitive
edge.
2) Brand Recognition and Goodwill.
Intangibles like brand names,
customer relationships, and goodwill
can significantly influence consumer

2
 trust and loyalty, translating into
higher sales and market presence.

3) Revenue Generation.
Licensing intellectual property (IP),
selling patented products, or using
proprietary software can create long-
term revenue streams.
4) Market Value
Intangible assets often contribute more
to a company’s market value than
physical assets, especially for tech and
service-oriented companies (e.g.,
software firms, biotech companies).
5) Strategic Investments.
Intangibles like R&D (Research &
Development) and employee training
enhance innovation and productivity,
fostering long-term growth.
6) Mergers and Acquisitions.

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 Mergers or acquisitions, intangible
assets are often critical factors in
determining a company’s valuation.
Focusing on developing and managing
intangible assets is crucial for businesses
aiming to thrive in today’s knowledge-
driven economy.

3) Two Types of Intangible

Assets.
Intangible assets fall into two
categories:
1. Identifiable intangible assets
2. Unidentifiable intangible
assets

1. Identifiable intangible assets.

Identifiable intangible assets can be
acquired or separated from the company
(bought and sold), but lack physical
form. These often have an indefinite
lifespan, lasting as long as a company
exists.
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Example of other intangible assets
including:
 Patents
 Trademark
 Copyright
 Non-monetary govt. Grants
 Airport landing rights
 Broadcasting licenses
 Proprietary data and algorithms
For instance, a social media platform’s feed
algorithm is an indefinite intangible asset. It
adds value over the long term and could
potentially be sold to another company.
2. Unidentifiable intangible assets.
Unidentifiable intangible assets can’t
be bought or sold separately
because they only exist in relation to
the company. These are often
definite intangible assets with a
limited lifespan.
Example of unidentifiable
intangible assets including.
 Reputation

5
  Client relationship
 Goodwill
 Brand recognition and equity
While difficult to quantify, these assets
significantly contribute to a company’s
overall value. A client relationship, for
example, is only an asset for as long as it’s
maintained.

4) How does a company

acquire intangible assets?
Companies can acquire intangible assets by
creating them internally or purchasing them
from another entity.

 Internal development
Companies often develop assets in house for
example.
 A social media company collects user
behavioral data to sell targeted ads.

6
  A creative agency builds goodwill with
freelancers by offering top pay and a
positive work environment.
 A hairdresser creates a viral Tik Tok post
that boosts their salon’s reputation.

 External acquisition
Companies can also acquire intangible
assets from other businesses. For instance,
when Meta (formerly Facebook) acquired
Instagram and WhatsApp, it gained.
 Underlying technology (code, design)
 Branding
 Advertiser relationships
 Intellectual property
 Reputation and goodwill
While many apps perform similar functions,
Instagram’s and WhatsApp’s intangible
assets contributed significantly to their high
valuations.

5) How to calculate the

value of intangible assets.

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Unlike tangible assets, quantifying the value
of intangible assets can be challenging.
Here’s a general formula to estimate their
value.

Intangible Assets value =

Market value of business – net
tangible assets value
To use this formula.
 Calculate your net tangible assets by
subtracting liabilities from your assets
 Subtract that number from your
business’s market value.

 Calculating the value of

goodwill
Goodwill, while abstract, can be calculated
when a company is bought or sold.
Subtract the difference between the fair
market value of the business’s assets and
liabilities from its purchase price.

Goodwill = Purchase price –

(Assets – Liabilities)
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 Amortization of assets
Amortization applies only to intangible
assets with a finite useful life. Say your
business gets a patent: that patent
typically has a 20-year lifespan in the US.
However, brand recognition resulting from
that patent has no finite useful life and
can’t be amortized.
To calculate amortization, use the straight-
line method.

Amortization Expense = Initial

value / Lifespan
6) Recording intangible
assets on a Balance Sheet
Intangible Assets are recorded on a
company’s balance sheet as long-term
assets. If they meet the following criteria.
They are acquired assets, They have a
useful lifespan, They have an identifiable
value, and They can be amortized. Internally
developed assets can’t be assigned a fair
market value.

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For example, Meta couldn’t list it’s like
button (developed in-house) on its balance
sheet. However, it could list Instagram’s
“double tap” feature, as it was acquired
intellectual property with a market value.

7) How are intangible assets

disclosed?
To comply with International Financial
Reporting Standards, intangible assets are
measured and disclosed at cost. This means
providing valuation and disclosures about
your intangible assets when selling them.
The purchaser can use these assets as a line
item for expenses and amortization on their
profit and loss statement.

10
For intangible assets with finite useful lives,
amortization expenses are included in the
income statement. Assets with indefinite
useful lives aren’t amortized but are tested
annually for impairment. If impaired, the
asset’s carrying amount is reduced to its
recoverable amount, and the impairment
loss is recorded in the income statement.

8) Legally protecting
intangible
assets
To preserve the value of your intangible
assets, it’s crucial to take steps for legal
protection. Here are some common
methods.
1. Patents

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 Grant exclusive rights to use, make, sell,
and distribute an invention for a set
period (usually 20 years).
2. Trade Marks
Protect brand names, logos, slogans, and
other identifiers that distinguish goods
and services.
3. Copyright
Safeguard original works of authorship,
including literary, musical, artistic works,
software, and architecture.
4. Nondisclosure agreements
(NDAs)
Protect trade secrets and confidential
business information that gives you a
competitive edge.

5. Licensing agreement
Allow companies to grant rights to third
parties to use their assets under specific
conditions.

6. Intellectual property (IP) laws

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 Various national and international IP laws
protect intangible assets.
7. Contracts & Agreements
Use legal contracts to specify ownership
and usage rights for intangible assets
when working with partners or
employees.
8. Digital Protection
Use cybersecurity, encryption, and
digital rights management (DRM) to
prevent unauthorized use of digital
assets.

9) Conclusion
Intangible assets, such as intellectual
property, brand reputation, and goodwill,
play a critical role in enhancing a company’s

13
value and competitive advantage. Although
they lack physical presence, their impact on
financial performance and strategic
positioning is significant. Proper valuation,
management, and protection of these assets
are essential for long-term success in an
increasingly knowledge driven economy.
Effective management and valuation of
intangible assets are essential for sustaining
a company’s growth. Businesses must invest
in protecting these assets through legal
mechanisms like patents, trademark, and
copyright, while also leveraging them to
maximize returns. Proper accounting and
reporting of intangible assets ensure
transparency and support informed
decision-making by stakeholders. By
recognizing their importance, companies
can better position themselves for long-term
success in a rapidly evolving market
landscape.

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