IAS 38 Intangible Assets defines an intangible asset as an identifiable non-monetary asset without physical substance. It means intangible assets are assets that we cannot touch and they don’t have any physical existence. Instead, they are paper assets of the company.
Here’s a detailed list of examples of intangible assets and a brief explanation of each example.
1. Trademarks
A trademark or copyright is a word or symbol that represents a company. Once registered, it cannot be used by another party, and any commercial or personal use (depending on the copyright holder) will result in penalties as per the law. A trademark is an intangible asset for a company and it can even be sold in isolation.
2. Customer Lists
A customer list is another major example of intangible assets as per IAS 38 Intangible Assets. It’s simply a list of a company’s customers generated throughout its operations. Why is it important? Well, for new companies operating in the same sector, it is a goldmine!
It can also be sold in isolation depending on the company’s data policy.
3. License
A license is a permission to do something granted formally by the government or other authorized body. It is an intangible asset for a company and can be sold in isolation depending on the type of license. Examples of licenses include pharmaceutical licenses, trading licenses, hiring licenses, etc…
4. Import Quotas
Import Quotas are the limits on the import of certain goods imposed by the government. It is imposed to uplift the businesses of locals and provide more opportunities in the country. For businesses, it is the amount or number of goods that they can import.
It is recorded as an intangible asset in the company’s books and some import quotas can be shared with other companies or sold separately.
5. Franchise Agreements
A franchise agreement is a legally binding document that outlines terms & conditions for a franchisee. It gives the franchisee the right to sell a company’s goods or services. For example, McDonald’s, one of the biggest restaurant chains in the world has 38,695 franchises globally as I write this article.
A franchise is an intangible asset and can be sold at a standalone price.
6. Mortgage Servicing Rights
Mortgage Servicing Rights (MSR) is a contractual agreement in which the right to service an existing right is sold by the original mortgage holder to another specialized party. The party then collects and forwards the payments to the originator. In simple words, the party administers various functions involved in the mortgage and gets paid for the service. For the mortgagor, the only thing that changes is the address to which they make their payments. MSR is also listed as an intangible asset in the company’s books.
7. Computer Software
Computer Software doesn’t have a physical existence, is able to generate future economic benefits, and its cost can be reliably measured which makes it eligible to be recorded as an intangible asset.
8. Video & Audio Material
Many companies today focus on creating video and audio material related to their industry. It could be research, a tutorial, an interview, or any other graphic or audio. The right to use an audio or video by a third party can be sold separately and fits in the criteria of intangibles.
9. Data
The phrase “Data is the next big thing” is turning out to be correct. Data is generated and sometimes bought to acquire leads and advertise to a particular group. Therefore, it is an intangible asset for companies.
10. Goodwill
Goodwill is simply the reputation of a company in the industry in which it operates. To measure goodwill, things like industry standards, customer ratings, customer & supplier relationships, the skillset of employees, local & international image of the company, etc… are considered.
The goodwill that is transferred in acquiring a company is recorded as an intangible asset in the company’s books. Goodwill generated internally, however, is not recognized as an intangible asset and is only recognized and calculated when selling the company.
Why are they categorized
as Intangibles?
IAS 38 requires an entity to recognize an intangible asset whether created or internally generated only and only when:
- It is probable that future economic benefits that are attributed to the asset will flow to the entity.
- The cost of the asset can be measured reliably.
The above criteria apply to both externally acquired and internally generated intangible assets.
If the definition and criteria are not met, the company cannot record it as an intangible asset and the cost is expensed to profit or loss as per IAS 38. Some other key points related to intangible assets include:
- Intangible assets are initially recognized at cost or the company has the option to choose the revaluation model (whichever method the company chooses should be applied to all intangible assets of the same class).
- Subsequently, the intangibles are carried at cost less accumulated amortization and impairment losses.
