Intangible Asset

Intangible are the assets which do not have physical existence. We can to see and touch them. For example good will of a firm. It derive its value from legal rights such as trademarks, copyrights, license agreements etc. These assets cannot be destroyed by natural calamities.

Intangible assets are long term assets for a firm or company. Usually, all intangible assets have useful life of more than a year. Based on its life, it has been classified as two types.

Usual method practiced by companies to calculate the worth of intangible assets is as follows:

Market value of the firm/company – net value of  tangible assets

Though intangible assets do not have physical substance, it contributes a major role while computing the worth of a company. It adds value to company’s future worth. A company cannot raise loans against its intangible assets unlike tangible assets.

Intangible assets have specific entries in company’s financial statements such as Balance Sheet. It can be significant percentage of company’s total assets and hence, have a big impact’s of company value. Depending on the nature of intangible assets, financial analysts either will include or exclude it from company’s book value. For example, good will cannot be separated from a company and sold out. Hence, it is excluded in company’s book value while calculating worth of the company. But, a patent can be separated and hence, it is included in company’s book value.