How Do Intangible Assets Show on a Balance Sh𝕴eet?

Intangible assets only appear on a company's balance sheet if they are acquired through a purchase—they are not internally developed—and therefore, they have an identifiable value and identifiable lifespan. They're included on a company's balance sheet as long-term assets and valued according to their price and amortization schedules.

Intangible assets differ from 澳洲幸运5官方开奖结果体彩网:tangible assets, which have physical forms. Intangible assets include patents, goodw💦ill, trademarks, fran⛦chises, customer lists, licensing, copyrights, and intellectual property. On the other hand, tangible assets can be seen, felt, or touched. Land, buildings, machinery, and inventory are tangible assets.

Understanding Intangible Assets

Intangible assets are non-physical resources that have financial value and are used over the long term. They add to a company's possible future worth, and they can be much more valuable than tangible assets. Most intangible assets are long-term assets, which means they have a 澳洲幸运5官方开奖结果体彩网:useful life of more than a year. 

They are often intellectual assets, such as patents, trademarks, copyrights, and goodwill. They can also be Internet domain names, service contracts, computer software, blueprints, manuscripts, 澳洲幸运5官方开奖结果体彩网:joint ventures, medical records, and permits. 澳洲幸运5官方开奖结果体彩网:Brand equity is an intangible asset because the value of a brand is determined by the perception of the company's customers (and it is not ⛄a physic🐼al asset).

Proper 澳洲幸运5官方开奖结果体彩网:valuation and accounting of intangible assets is often problematic because of the difficulty in assigning value to them. This difficulty partially arises from the uncertainty of their f🔥uture benefits—and the dif🅰ficulty in reliably measuring their costs. 

Tangiblꦑe Assets vs. Iꦕntangible Assets on Balance Sheet

Tangible assets are always listed on a company's balance sheet; they are considered a part of the company's total assets and are recorded on a company's balance sheet. On a balance sheet, tangible assets are classified as either current assets or non-current (also called "fixed" assets). Current assets are short-term assets; they can be converted to cash, sold, or used within one year. They provide liquidity and help a company run its day-to-day operations. Inventory is an example of a current asset.

Non-current assets are tangible assets that are n🐠ot expected to be consumed or converted to cash within one year. Property, plant, and equipment are examples of non-current assets.

On the other hand, intangible assets only appear on the balance sheet when they have an identifiable value and lifespan; they appear on a company's balance sheet as long-term assets and are valued according to their price and amortization schedules. Internally developed intangible assets do not appear on a company's balance sheet.

An Example of a Balance Sheet:

Below is a portion of 澳洲幸运5官方开奖结果体彩网:Apple's balance sheet from their Form 10-K statement from 2017.

• Intangible assets comprise these categories on the balance sheet: "Goodwill" and "Acquired Intangible Assets, net."
• "Goodwill" was approximately $5.7 billion for Apple in 2017.
• "Acquired Intangibles, net" were approximately $2.2 billion for Apple in 2017 (highlighted in blue).
• Intangible assets are not listed under current assets (highlighted in pink) because they are long-term assets. They are used in the business for more than one accounting period—in other words, they have a long-term, useful economic life.

Even though an intangible asset, such as Apple's logo, carries huge name recognition value, it does not appear on the company's balance sheet because it was internally developed. Because it was developed internally, it doesn't have a price that can be used to assign a 澳洲幸运5官方开奖结果体彩网:fair market value. However, if the logo had been part of the acquisition of another firm, it wou🍃ld appear on the balance sheet.

Suppose that a company does acquire an intangible asset, such as the right to use another company's customer list for 10 years (a finite period of time i.e. an identifiable lifespan). If that company spends $10,000 to purchase the customer list—an intangible asset—for 10 years (a finite period of time), then $1,000 of the 澳洲幸运5官方开奖结果体彩网:purchase price would be expensed each year, and the value of the customer list license would appear on the balance s⛦heet in year three as $7,000.

Intangible assets with infinite life (versus finite life), including goodwill, are not amortized systematically. Instead, they are included on the balance sheet, as Apple has done, and periodically reviewed for impai✃rment.

The Bottom Line

Intangible assets are assets that lack physical form and are non-financial in nature, such as patents, trademarks, and copyrights. Intangible assets appear on a balance sheet under long-term assets. They're listed at their purchase price minus accumulated amortization—in other words, they're recorded at their cost minus the amount expensed over their useful life. However, intangible assets that are internally developed do not appear on the balance sheet. Only intangible assets that are acquired through a purchase—and thus, have an identifiable value and lifespan—appear on a balance sheet.