Intangible assets will unlock the hidden potential of your business. These non-physical assets, such as brand reputation, intellectual property, and customer relationships, can greatly impact a company’s success and are often worth more than physical assets. Don’t underestimate the power of your intangible assets; harness them for maximum value and growth. Continue reading this Legal Kitz blog to find out more about maximising your intangible assets.
What is an intangible asset?
An intangible asset is a non-physical asset that has value and is legally protected. It is a form of intellectual property that provides a company with a competitive advantage and is used to generate revenue. Unlike tangible assets such as buildings and equipment, intangible assets cannot be physically touched or seen. However, they play a critical role in the success and growth of a business, as they can increase in value over time and can be sold, licensed, or used as collateral.
Companies often invest significant resources into developing and protecting their intangible assets, as they are a key source of revenue and can provide a long-term competitive advantage. Intangible assets are therefore a vital component of a company’s overall worth and play a significant role in its ability to generate profits and maintain its market position.
Examples of an intangible asset
Intangible assets include intellectual property, brand reputation, and other non-physical assets that have value. Examples of intangible assets include:
- Trademarks – these are symbols, logos, or names that are used to identify and protect a company’s brand.
- Copyrights – these protect original works of authorship such as music, literature, and software.
- Patents – these protect inventions and new technologies.
- Trade secrets – these are confidential business practices, formulas, or processes that give a company a competitive advantage.
- Brand reputation – the value associated with a company’s image and reputation in the market.
- Customer relationships – the value of established and loyal customer relationships can also be considered an intangible asset.
Intellectual property can be best protected with IP insurance, which you can find out more about here.
What is the difference between tangible and intangible assets?
Tangible assets and intangible assets are two distinct types of assets that are valued and managed differently. Tangible assets are physical assets such as property, equipment, and machinery that can be seen and touched. They have a tangible value, as they can be sold or used as collateral. Tangible assets are also depreciable, meaning their value decreases over time, and they need to be maintained and replaced eventually.
Intangible assets, on the other hand, are non-physical assets such as patents, trademarks, copyrights, and brand reputation. These assets do not have a physical presence, but they have a significant impact on a company’s overall value. Intangible assets are often considered the lifeblood of a business, as they provide a competitive advantage, increase in value over time, and are a key source of revenue. They are also legally protected and can be licensed, sold, or used as collateral. Unlike tangible assets, intangible assets do not depreciate in value, and they can be a long-term source of value for a company.
Tangible and intangible assets are both important components of a company’s worth and contribute to its ability to generate profits and maintain its market position. However, they are valued, managed, and leveraged differently, and a company’s success often depends on its ability to effectively manage both types of assets.
Examples of tangible assets
Tangible assets are physical assets that have a measurable value and can be seen and touched. Examples of tangible assets include:
- Real estate – such as buildings, land, and other properties.
- Equipment – such as machinery, vehicles, and office equipment.
- Inventory – stocks of raw materials, finished goods, and supplies that a company holds for sale.
- Furniture and fixtures – office furniture, desks, chairs, and other fixtures used in the operation of a business.
- Natural resources – such as oil, gas, minerals, and timber.
- Art and collectibles – these can include fine art, rare books, and other collectible items that have tangible value.
Tangible assets play a critical role in the success of a business, as they can be used to generate revenue, and provide the company with a physical presence. They are also depreciable, meaning their value decreases over time, and they need to be maintained and eventually replaced. Companies need to carefully manage and maintain their tangible assets to ensure that they retain their value and continue to contribute to the success of the business.
How do you value intangible assets?
Valuing intangible assets can be a challenging task, as they are non-physical assets that do not have a tangible value. There are several methods that can be used to value intangible assets, including:
- Cost method – this involves calculating the cost of creating and developing the intangible asset, including research and development expenses, legal fees, and other costs associated with obtaining and protecting the asset.
- Market method – this involves comparing the intangible asset to similar assets that have been sold or licensed in the market and determining its value based on market prices.
- Income method – this involves projecting the future income that the intangible asset will generate and discounting that income to determine its present value.
- Relief from royalty method – this involves calculating the amount of royalty payments that would be required if the intangible asset were licensed to another company and determining the value of the asset based on those payments.
Each method has its advantages and disadvantages, and companies often use a combination of methods to value their intangible assets. It’s important to consider the specific nature and characteristics of each intangible asset when determining its value. Additionally, intangible assets can change in value over time, so companies need to regularly re-evaluate the value of their intangible assets to ensure that they are accurately reflected on the balance sheet.
Valuing intangible assets requires a combination of financial and legal expertise, as well as a thorough understanding of the specific characteristics and value drivers of each asset. Companies need to be diligent and systematic in their approach to valuing intangible assets to ensure that they accurately reflect the value of these critical assets.
What is the IAS 38 intangible assets standard?
IAS 38 is a standard issued by the International Accounting Standards Board (IASB) that provides guidance on the recognition, measurement, and disclosure of intangible assets. According to IAS 38, an intangible asset is defined as an identifiable non-monetary asset without physical substance, which can be either acquired or internally generated. The standard applies to all intangible assets, except for goodwill and certain other intangible assets that are specifically excluded.
IAS 38 requires companies to recognize an intangible asset only if it is probable that the expected future economic benefits that are associated with the asset will flow to the company, and the cost of the asset can be reliably measured. The standard also sets out requirements for the measurement of intangible assets, including the use of fair value in certain circumstances and the recognition of any subsequent impairment losses.
In terms of disclosure, IAS 38 requires companies to provide information about the nature and characteristics of their intangible assets, the amount of any impairment losses, and any changes in the carrying amount of the assets. Companies must also disclose information about the expected future economic benefits of their intangible assets and the factors that could affect their future economic performance.
The standard is intended to improve the comparability and transparency of financial statements by ensuring that intangible assets are recognized, measured, and disclosed in a consistent and reliable manner. Companies need to carefully consider the requirements of IAS 38 and ensure that they are in compliance with the standard when accounting for their intangible assets.
Legal advice
If you believe you have an intangible asset that needs protection, Legal Kitz, who can assist you. To arrange a FREE consultation with one of our highly experienced solicitors, click here today, or contact us at [email protected] or 1300 988 954.