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What are Intangible Assets?

Intangible assets are non-physical resources a business owns and uses for more than one year, such as software, licences, patents, trademarks, copyrights and customer lists. They have no material form but hold real economic value, and their cost is spread over their useful life through amortisation rather than depreciation.

The line between tangible and intangible is simple: can you touch it? Machinery, vehicles and buildings are tangible fixed assets. Software licences, patents, brand names and customer relationships are intangible, even though they often drive more of a modern business's value than the physical assets do.

Intangibles are amortised over the period they provide benefit, which is usually the shorter of their legal life and their useful economic life. Some, like goodwill, are not amortised but tested for impairment. Keeping intangibles on the balance sheet at their proper carrying value matters because they are frequently a company's most valuable and most easily overstated asset.

Example

A clinic buys a software licence for €6,000 that it will use for three years. The licence is an intangible asset, not a fixed asset, and its cost is amortised at €2,000 a year over the three-year useful life rather than expensed all at once.

Questions

What is the difference between an intangible asset and a fixed asset?

A fixed asset is physical, like machinery or a vehicle; an intangible asset has no physical form, like software, a patent or a brand. Both are long-term, but intangibles are amortised while fixed assets are depreciated.

How are intangible assets recorded on the balance sheet?

They are recorded at cost and reduced over time through amortisation. Internally generated brands are generally not recorded because there is no objective cost, while purchased intangibles are carried at their acquisition cost.

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