Intangible Assets

Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets. An intangible asset can be classified as either indefinite or definite depending on the specifics of that asset. While a company's brand name is considered to be an indefinite asset, as it stays with the company forever, if a company enters a legal agreement to operate under another company's patent, with no plans of extending the agreement, it would have a limited life and would be classified as a definite asset.

Intangible assets are recorded as other fixed assets under Fixed Assets on the Balance Sheet. It should be noted that while goodwill is technically an intangible asset, it is usually listed as a separate item on a company's balance sheet. As a distinct type of intangible asset, goodwill typically comes into play only in an acquisition, and represents the amount of money a company has paid or would pay over book value to acquire another company.

Intangible assets are typically expensed according to their respective life expectancy. Depending on their life expectancy, Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. Examples of intangible assets with identifiable useful lives include copyrights and patents. Intangible assets with indefinite useful lives are reassessed each year for impairment. If an impairment has occurred, then a loss must be recognized. An impairment loss is determined by subtracting the asset's fair value from the asset's book/carrying value. This impairment loss may only be reversed under certain circumstances. Trademarks and goodwill are examples of intangible assets with indefinite useful lives. FASB also requires disclosure of information about goodwill and other intangible assets in the years subsequent to their acquisition. Required disclosures include information about the changes in the carrying amount of goodwill from period to period (in the aggregate and by reportable segment), the carrying amount of intangible assets by major intangible asset class for those assets subject to amortization and for those not subject to amortization, and the estimated intangible asset amortization expense for the next five years.