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Definition

Intangible assets

What is Intangible Asset?

Long-term assets utilized in the process of production that cannot be seen or touched are known as Intangible Assets (intangibles). These are non-current assets that do not have physical substance yet often are very valuable. They consist of legal rights or competitive advantages (a bundle of rights). Precisely, the owner of the following assets has these rights. 

These assets must provide the user with some clear financial advantage and values, such as higher sales or profits (price, volumes, and better distribution, among other things), cost reductions (process efficiencies and promotional cost reductions), and increased sales or awareness.

Understanding of Intangible Asset

Intangible assets are a firm’s assets that you cannot touch or see but that are very often critical in creating a competitive advantage. Evidence of intangibles may exist in the form of contracts or licenses. 

Intellectual property (IP) including copyrights, patents and trademarks as well as goodwill/company reputation, brand names, organizational morale, technical knowledge, consumer relationships, and contracts, all fall into the identifiable intangibles. These assets usually have legal ownership rights and can be purchased or split from the company. 

On the other hand, owners can make earnings from these assets by charging license fees or royalty, or by offering to buy them. Intangibles like work procedures, expert monitoring, and skilled people provide competitive advantages and add value to an ongoing concern. But they cannot be sold apart from the business.

Practical Example

A few years ago, Coca-Cola had a ten-year patent on a unique flavour and that patent was valid for ten years. The patent basically allowed Coca-Cola to have its proper rights on uniqueness and innovation. On the other hand, limited-life intangibles only survive a short period. But, valued intangible assets are nonetheless long-term assets that are just as valuable as tangibles that can be used indefinitely.

In Sentences

  • The term intangible asset is widely used to indicate those assets that give a company long-term benefit.

 

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