Intangible Assets

Intangible Assets are defined as those assets that lack physical structure and have a high degree of uncertainty surrounding future benefits to be derived from them.  The most common types of intangible assets appearing on the balance sheet are goodwill, copyrights, trademarks, patents, franchises and organization costs.

Valuing intangible assets presents a problem because

• They are often only valuable to a given company
• The exact useful life is difficult to determine
• The benefit might be based on competitive advantage and this can lead to wild swings in value

The value of purchased intangible assets is recorded on the balance sheet based on their original cost.  Amortization is the method to account for the expiration in an intangible asset's value.