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Intangible asset finance

Intangible assets in general term are defined as the assets which are non-physical resources that gain advantages in the marketplace. Some of the Intangible asset products are Copyright software’s, reputation, goodwill, intellectual property, logos, and trademarks etc.

Intangible Asset Finance is the branch of finance that deals with the intangible assets,i.e. the patents and reputation. Intangible assets are basically concerned with the similarity of price, risk and time.

Intangible assets are the assets that are not the financial instruments and lacks in the physical existence of the financial instruments. These are the long-term assets as they have been gained over the several years. They are valuable as they provide rights and privileges to their owners. These assets are classified as

  • Purchased Intangibles which is recorded at the cost spent to purchase an intangible asset from another entity which includes the acquisition costs and the expenditures made to get the asset ready for its intended use (e.g. Legal fees).
  • Internally created Intangibles are not the balance sheet items, the cost is spent to internally develop an intangible asset have to be expensed which includes R&D costs, legal costs that may be capitalized.
  • Limited –life Intangibles are those that have a limited useful life like the copyrights, patents. These are systematically amortized (Amortization means to write off a cost of any asset gradually over a period of time). The amortization cost is equal to the difference between the intangible asset cost and the asset residual value.
  • Indefinite –life intangibles are not amortized because there is no forecasted limit to the cash flows generated by the intangible asset. Goodwill, trademarks, franchises are some of the examples of indefinite-life intangibles.

Intangible assets target the organization’s knowledge and experience, information, the expertise, the technical assets, the intellectual properties, the human resources, goodwill of the company, etc. which carries the value of the organization.

It is the part of the company’s real worth which is being formed by its staff and their skills, knowledge, and creativity of the resources available along with the fundamental sources of the wealth and value in a knowledge-based economy.