Intangible assets are non-physical assets that still provide value to your business, such as a good reputation or a strong brand presence.
Examples of intangible assets are goodwill, brand recognition, copyrights, patents, trademarks, and customer lists. These assets last for a long time, and can even increase over time—they’re very important for the long-term success of your business.
Intangible assets are usually divided into the categories brand, goodwill and intellectual property.
Brand
This is the logo, symbol and marketing name that your company uses. It contributes to the value of a company, and is important to retain long-term customers.
Goodwill
Goodwill is an important intangible asset. It represents the value of a company’s reputation, including customer satisfaction and future potential. Having a positive reputation can add a lot of value to a business.
When a business with a lot of goodwill is sold, the selling price usually exceeds the actual book value of the company. The disparity between the selling price and the book value is considered to be the company’s goodwill.
Intellectual property
This category includes assets like copyrights, patents, trademarks, and trade secret. These intangible assets are legally protected.
Accounting for intangible assets
While intangible assets are considered long-term assets, it’s impossible to determine the future benefits you’ll get from them, and how long they’ll last. It’s also difficult to figure out how much it’ll cost to maintain the asset.
Since intangible assets are hard to put a value on, they’re only included in your balance sheet if your business is being sold. The intangible assets then represent the difference between the selling price and the book value.
If businesses could include intangible assets on their balance sheet every year, they would have the chance to assign unreasonably high value to assets such as logos and brand presence to make it seem like the company is worth more than it actually is, and to confuse confuse buyers, investors, banks, and stakeholders.