Intangible assets are valued resources owned by an individual or company that cannot be physically measured and which have the potential to produce earnings but are not presently available for sale. Additionally, intangible assets cannot be quickly turned into cash. Trademarks, motion pictures, licensing agreements, broadcast rights, marketing rights, franchise agreements and copyrights are just a few examples of intangible assets.
The International Financial Reporting Standard (IFRS), formerly known as the International Accounting Standard (IAS), is an accounting standard set by the International Accounting Standards Boards. According to IAS 38.8, an intangible asset has three key attributes, namely identifiability, control, and future economic benefits (such as revenues).
First and foremost, intangible assets must be identifiable. It is said to be identifiable when it is capable of being sold, licensed, or rented by contract, or when it arises from contractual or legal rights, regardless of whether those rights are capable of being sold, licensed, or rented. Next, the company has to have control on intangible assets. An organization has the ability to gain advantages from these assets through the following: separate purchase, by a government grant, by exchange of assets, or by self-creation (internal generation). And lastly, intangible assets must have some future economic benefits. This would mean that these assets must have the potential of increasing the future earnings of the company, and the cost must be measurable. If one of these is not met, IAS will require the item to be recognized as an expense, and not as an asset.
Although intangible assets cannot be physically measured, it is still important for companies to safeguard these items by all means. The truth is, these intangible assets can cost the entire company. The Microsoft brand, for instance, is without a doubt very valuable. Bill Gates would not be consistently included in the Forbes list of billionaires if not for the intangible Microsoft brand name.
On the other hand, as priceless as these can be, intangible assets are usually listed separately on the balance sheet from tangible assets. In fact, intangible assets are given meaningless values on these sheets of financial statements. However, bear in mind that what really gives value to these assets is the income statement.
