Intangible Asset

Not all valuable things can be touched. A company's brand, the rights to an invention or a database of loyal customers can be worth a great deal, sometimes more than its buildings and machinery. These are intangible assets.

In accounting, intangible assets are recorded on the balance sheet when they are bought from someone else or acquired as part of buying a business. For example, if a company pays 2 million for a competitor's software and customer contracts, those items are recorded as intangible assets.

Internally created intangibles are harder to record. Most costs of building a brand or doing research are expensed as they are incurred, so a company's own brand often does not appear on its balance sheet at all, even if it is extremely valuable.

Intangible assets with a limited life, such as a patent, are amortised over that life. Those with no foreseeable end, such as goodwill, are not amortised but are tested regularly for impairment.