Question

Intangible assets have two primary traits. They do not have physical existence and they are not financial instruments. Intangible assets acquire value from the rights and privileges granted from using them. Purchased intangible assets are recorded at cost and costs incurred to create intangibles internally are normally expensed.

• Imagine you are the chief financial officer of a company with valuable internally created intangible assets. Create an argument supporting the inclusion of the intangibles on the balance sheet at fair market value. What are the risks and challenges involved in assigning a dollar value to internally created intangible assets?

Answer 1

Intangible assets are typically nonphysical assets used over the long-term. Intangible assets are often intellectual assets. Proper valuation and accounting of intangible assets are often problematic, due in large part to how intangible assets are handled. The difficulty assigning value stems from the uncertainty of their future benefits. Also, the useful life of an intangible asset can be either identifiable or non-identifiable. Most intangible assets are long-term assets meaning they have a useful life of more than a year. Examples of intangible assets that are intellectual property include:Patents, Trademarks ,Franchises or licensing agreements, goodwill , copyright.

Intangible assets are only listed on a company's balance sheet if they are acquired assets and assets with an identifiable value and useful lifespan that can thus be amortized, Internally developed intangible assets do not appear as such on a company's balance sheet. 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. The reason for not appearing on the balance sheet is because the logo was developed internally and does not have a price that can be used to assign fair market value, as would be the case had the logo been part of the acquisition of another firm,