Types of intangible assets

An intangible asset is a non-physical asset that has future economic value for a business. Unlike tangible assets (like buildings or machinery), you cannot touch or feel intangible assets, but they provide rights and future economic benefits.

Intangible assets are considered Asset accounts and appear on the balance sheet. They are typically classified as Non-Current Assets because they are expected to provide benefits for more than one year.

Intangible assets can be broadly categorized and include many specific types. Common categories and examples include:

• Marketing-Related: Trademarks, trade names, domain names, company logos, non-compete agreements.
• Customer-Related: Customer lists, customer relationships, order backlogs.
• Artistic-Related: Copyrights, theatrical rights, literary works, musical compositions.
• Contract-Based: Licensing agreements, franchise agreements, broadcast rights, service contracts, lease agreements.
• Technology-Related: Patents, proprietary technology, software, databases, trade secrets.
• Goodwill: Arises when a company acquires another business for more than the fair value of its identifiable net assets. It represents the future economic benefits from assets acquired that are not individually identified.

There isn't a fixed number of "types." Intangible assets are categorized based on their characteristics and how they are legally protected or arise. The lists above cover the most common categories, but specific examples within these categories are numerous and can be unique to different industries.

Goodwill is a specific type of intangible asset. It's unique because it cannot be bought or sold independently from the business it relates to. It arises only through the acquisition of an entire business and represents the non-identifiable value of the acquired entity, such as reputation, skilled workforce, or customer loyalty that isn't captured in other identified assets.

Intangible assets are considered a type of intellectual property or simply non-physical property that holds value. Legally, they grant certain rights or benefits to the owner.

When a business acquires an intangible asset from another party, the cost is treated as a capital expenditure and recorded as an asset on the balance sheet. For internally developed intangible assets, accounting rules are stricter; only certain development costs (like those for software or R&D in specific cases) can be capitalized as assets, while others (like internally generated brand value or R&D costs before technological feasibility) are expensed.

Intangible assets that have a finite useful life are amortized over that useful life. Amortization is the systematic allocation of the cost of an intangible asset over the periods it is expected to generate benefits, similar to depreciation for tangible assets. Examples include patents (amortized over their legal life, typically 20 years), copyrights, or license agreements.

Intangible assets with an indefinite useful life (like most trademarks or internally generated goodwill) are not amortized but are tested annually for impairment (a significant decrease in value).