INTANGIBLE ASSETS

1. AN INTANGIBLE ASSET IS AN ASSET THAT

DOES NOT HAVE ANY PHYSICAL
EXISTENCE.
2. LIKE TANGIBLE ASSETS , YOU CANNOT
TOUCH OR FEEL THEM BUT THEY HAVE A
CURRENT AND FUTURE VALUE.
 Types Of Intangible Assets
 Goodwill
 Franchise Agreements
 Patents
 Copyrights
 Trademarks
Operating expenses verses intangible
assets:
➢ For an expenditure to qualify as an intangible asset , their must
be reasonable evidence of future benefits.
➢ The life span of these benefits are so uncertain that most
companies treat these expenditure as operating expenses .
➢ Example are the expenditure required to recognize business and
expense of training employess with new type of machinery.
AMMORTIZATION:

 Amortization is an accounting term that refers to the

process of allocating the cost of an intangible assets over a
period of time.
 It also refers to the repayment of loan principle over time.
ENTRY FOR AMMORTIZATION:
Amortization expenses
Intangible assets account
 CALCULATION :
THERE ARE MANY METHODS THAT CAN BE USED FOR
INTANGIBLE ASSETS AMORTIZATION. HOWEVER MOST
USED AND SIMPMEST METHOD IN WHICH AMOUNT
THAT HASTO BE AMORTIZED IS RECORDED COST OF
INTANGIBLE ASSETS AMORTIZATION LESS THAN ANY
RESIDUAL VALUE
GOODWILL:

Good will is considered as intangible assets because it is only the

physical assets like building or equipments .Good will is found in
balance sheet.
Good will mean financial reporting of business.
➢ Positive attributes of goodwill:
▪ Favorable reputation
▪ Positive market share
▪ Positive advertising image
▪ Superior management
types of intangible assets:
 PATENT
 TRADEMARKS AND TRADE NAME
 COPYRIGHTS
 OTHER INTANGIBLE ASSETS AND DEFFERED CHARGES
PATENTs:

A patent is an exclusive right granted by federal government for manufacture ,use

and sale of particular product . The purpose of this exclusive grant is to encourage the
invention of new product.
 Patents are granted for 17 years and period of amortization should not exceed. If
patent is likely to lose its usefulness in less then 17 years ,amortization should be
based on the shorter estimated useful life.
 Patent does not have physical substance .
 Entry
Amortization expense
Patents
TRADE MARKS AND TRADE NAME:

 A trademark is a name ,symbol or design that identifies a product OR GROUP of

products . A permanent symbol may be obtained by registering it with the federal
government.
 The cost of developing trademark or brand name consist of advertising campaign
which treat as as expense when incurred.
 If brand name is purchased then it should be capitalizes and amortized as expense
until it is used , if its not used then it should be written off immediately.
FRANCHIES:

 A franchise is a right granted by government or company to conduct certain

business in specific geographical area
 EXAMPLE:
 Many fast food restaurants like KFC, McDonalds operate using franchise
system . Many franchiser grants varying amount of autonomy to the franchises to
use brand name from franchisor’s extensive marketing.
COPYRIGHTS:

Copyright is an exclusive right granted by federal government to protect the

production and sale of literary or artistic materials for the life of the creator plus 50
years . The cost is minor . It is applicable to certain forms of creative work. It does
not protects ideas and facts.
 NATURAL RESOURCES

 In addition to plant assets, there is

another type of long-term asset
NATURAL RESOURCES.
 Natural resources are similar inventory
because they can sold or used in production.
 However they are long term asset
because that will take years to extract from
the environment.
 NATURAL
RESOURCES
TO SUMMARIZED:
 Assets that come from earth are consumed.
 The valve of the reserves that a company
 owns/controls is a long term assets.

INCLUDES:
Iron ore, oil, natural gas, timber, coal,
Diamonds, gold etc
 DEPLETION
Natural resources is also known as
depletion.
Depletion expense is recorded in income
statement.
Accumulated depletion is recorded on
the balance sheet.
Steps in recorded depletion
1. Compute depletion per unit(based in
estimated reserves).
2. Compute depletion for the
period(based on actual extraction).
FOR EXAMPLE:
A company owns oil reserves that cost 700,000 and is
estimated to contain 70,000 barrels of oil. During the year
3,000 barrels are extracted.
Step no. 1 compute depletion per unit
Depletion per unit = (cost - reserved value) / estimated life
= (700,000 – 0) / 70,000
= 10 per barrel
Step no. 2 compute depletion per period
Depletion per period = (depletion per unit * current year extraction)
= (10*3000)
= 30000 depletion expense
date Account and explanation debit credit

  Depletion expense - oil 30,000  

  Accumulated depletion – oil   30,000

  To record depletion