Defining Intangible Assets
Intangible assets lack physical form but possess value. They include intellectual property, brand recognition, and proprietary technology. Unlike tangible assets, their benefits are usually reaped over a longer period.
Identification and Recognition
Not all intangible assets are recognized on balance sheets. To be identified, they must be separable, arise from legal rights, and possess measurable future economic benefits.
Valuation Complexities
Valuing intangible assets is challenging due to their unique nature. Methods like market, cost, and income approaches are used, often requiring specialized appraisal expertise.
Intangibles in M&A
During mergers and acquisitions, intangible assets can be the main value drivers, often exceeding the value of tangible assets. Goodwill, a form of intangible asset, frequently emerges in these transactions.
Amortization and Impairment
Intangible assets with finite lives are amortized over their useful life. However, those with indefinite useful lives are not amortized but must be regularly tested for impairment.
Taxation Implications
The tax treatment of intangible assets varies by jurisdiction. Some allow amortization for tax purposes, potentially providing significant deductions over time.
Intangibles and Innovation
Companies with a strong portfolio of intangible assets often lead innovation. These assets, like patents, can create barriers to entry, securing a competitive advantage in the market.
What is true about intangible assets?
They have physical form.
They include brand recognition.
They are quickly amortized.
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