How to Recognize Intangible Assets

Martin Ejector Seat Patent = Intangible Asset

A person cannot touch or see intangible assets because they cannot be physically measured or counted. If a company fails to recognize any of its intangible assets, though, they may be overlooked in strategic planning. Failure to plan for retaining intangibles could put them at risk. Intangible assets are created over time by the efforts of a company’s employees and management. Once identified, they may be listed as a separate asset for accounting purposes. How can a company recognize intangible assets?

Instructions

1. 

   Consider if a company has a unique database of customers unknown to other companies, trade secrets, goodwill, copyrights, patents, or trademarks. These intangible assets are legal intangibles with legal property rights defensible in court. Loyal customers may look specifically for items with your company's trademark on them. If your trademark makes items sell better on the market then it has value as an intangible asset.

2. Does a company have knowledge or know how that nobody else has? Is the company involved in collaboration activities or does it have an advantage that directly influences productivity, costs, and waste. If so, these competitive intangibles may influence a company's revenue, customer satisfaction, and market value. While these types of intangible assets may not be listed on the company books, they definitely affect the company’s performance and value. This makes them worthy of consideration and strategic company planning.

3. Is the company always making new discoveries such as break-through drugs and software products? This increases a company's value and is an intangible asset of knowledge.

4. Look for intellectual capital items within the company that are unique and therefore intangible assets. Such things as innovation, employee loyalty, customer loyalty, and supplier relationships can increase a company's profits and value.

5. Having a positive work environment for employees is an intangible asset because it leads to increased productivity, decreased employee turnover, and decreased employee lost work time. Having to train new employees instead of retaining existing ones leads to errors, lower productivity, and increased costs. Things like rewarding employees, consistency, and treating employees fairly can improve a company's image to the customer base. That usually results in increased sales and profits. This type of intangible asset cannot be depreciated on the company books but definitely has long-term value.

Tips & Warnings

• "The Uniform Commercial Code (Section 9-102(a)(42)) defines "general intangibles" as"

• "any personal property...other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter of credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software." Wiki

• Failure to recognize intangible asset can lead to their eventual loss.

• Failure to plan for retaining intangibles could end their existence.

Resources

• Accounting Standards
• Stern NYU Education
• Accuval Insights
• Wiki Intangilble assets
• Intangible assignment