In this article, Shruti Chand (ESSEC Business School, Master in Management, 2020-2022) elaborates on the concept of Intangible Assets
This read will help you get started with understanding intangible assets on the balance sheet of a company.
An intangible asset is an asset that has no physical existence. Such assets are identifiable when it is separable, or when it arises from contractual or other legal rights. These intangible assets can be sold, transferred or even licensed.
Most notable examples of intangible assets include:
- Goodwill: Goodwill is an intangible asset that is the premium in excess to the purchase price of the company. Goodwill of a company can include intellectual property and brand value, which is not easily quantifiable.
- intellectual property: The intellectual property owned by a company as a result of creativity, such as patents, copyrights, etc.
- Patents: A license issued to a company conferring a right or title for a set period to exclude others from using, selling or making an invention.
- Trademarks: Words, symbols legally registered by a company representing a product owner by them.
- Copyrights: Rights that the creators of a product have created so that other makers don’t mimic/copy their work
Software and other computer-related assets outside of hardware also classify as intangible assets.
Real life example: For instance, Company A purchases a patent from Company B for an agreed amount of 1 million, then Company A would record in its intangible assets 1 million under long term assets.
How can you value Intangible Assets?
Businesses can create intangible assets in cases where it pays more than the book value of an asset and records it at a higher value on the Balance Sheet. This premium paid is an intangible asset on the books of the company.
Some important things to remember:
Financial assets are not intangible because they derive value from the contractual claims backing them.
Intangible assets contribute to the value of the company only through its presence on the balance sheet. Its measurement is essential to the company while assessing the state of the company’s resources.
Relevance to the SimTrade certificate
Intangible assets are an important factor to assess the value of companies investors want to invest in.
- By taking the SimTrade course, you will know more about how investors can use various strategies to invest in order to trade in the market.
- By launching the series of Market maker simulations, you can extend your learning about financial markets and trading approaches.
About the author
Article written by Shruti Chand (ESSEC Business School, Master in Management, 2020-2022).