intangible assets

Examples of intangible assets in the following topics:

• Noncash Items

  • Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E), is an accounting term for assets and property.
  • PP&E are often considered fixed assets: they are expected to have relatively long life, and are not easily changed into another asset .
  • For example, an asset worth $100,000 in year 1 may have a depreciation expense of $10,000, so it appears as an asset worth $90,000 in year 2.
  • Amortization is a similar process to deprecation but is the term used when applied to intangible assets.
  • Examples of intangible assets include copyrights, patents, and trademarks.

• Total Assets Turnover Ratio

  • Examples of intangible assets are goodwill, copyrights, trademarks, patents, computer programs, and financial assets, including such items as accounts receivable, bonds and stocks.
  • Total assets turnover = Net sales revenue / Average total assets
  • Anything tangible or intangible that is capable of being owned or controlled to produce value, and that is held to have positive economic value, is considered an asset.
  • Tangible assets contain various subclasses, including current assets and fixed assets.
  • Current assets include inventory, while fixed assets include such items as buildings and equipment.

• Market/Book Ratio

  • P/B ratios are commonly used to compare banks, because most assets and liabilities of banks are constantly valued at market values.
  • A higher P/B ratio implies that investors expect management to create more value from a given set of assets, all else equal (and/or that the market value of the firm's assets is significantly higher than their accounting value).
  • For companies in distress, the book value is usually calculated without the intangible assets that would have no resale value.
  • Technically, P/B can be calculated either including or excluding intangible assets and goodwill.
  • When intangible assets and goodwill are excluded, the ratio is often specified to be "price to tangible book value" or "price to tangible book".

• Uses of the Income Statement

  • The income statement also reflects the periodic decline in the value of fixed and intangible assets when depreciation and amortization expenses are reported.
  • The intangible asset goodwill is not subject to amortization but must be tested for impairment once a year; any reductions in value are reported as an impairment loss on the income statement.

• Assets

  • Assets on a balance sheet are classified into current assets and non-current assets.
  • On the left side of a balance sheet, assets will typically be classified into current assets and non-current (long-term) assets.
  • Non-current assets include property, plant and equipment (PPE), investment property (such as real estate held for investment purposes), intangible assets, long-term financial assets, investments accounted for by using the equity method, and biological assets, which are living plants or animals.
  • There are two primary forms of intangibles - legal intangibles (such as trade secrets (e. g., customer lists), copyrights, patents, and trademarks) and competitive intangibles (such as knowledge activities (know-how, knowledge), collaboration activities, leverage activities, and structural activities).
  • The intangible asset "goodwill" reflects the difference between the firm's net assets and its market value; the amount is first recorded at time of acquisition.

• Limitations of the Balance Sheet

  • The three limitations to balance sheets are assets being recorded at historical cost, use of estimates, and the omission of valuable non-monetary assets.
  • Depreciation affects the carrying value of an asset on the balance sheet.
  • Therefore, the balance sheet does not show true value of assets.
  • The International Accounting Standards Board (IASB) offers some guidance (IAS 38) as to how intangible assets should be accounted for in financial statements.
  • In general, legal intangibles that are developed internally are not recognized, and legal intangibles that are purchased from third parties are recognized.

• Debt to Equity

  • The debt-to-equity ratio (D/E) indicates the relative proportion of shareholder's equity and debt used to finance a company's assets.
  • Adjustments are sometimes also made, for example, to exclude intangible assets, and this will affect the formal equity; debt to equity (dequity) will therefore also be affected.
  • The debt-to-total assets (D/A) is defined asD/A = total liabilities / total assets = debt / (debt + equity + non-financial liabilities)
  • On a balance sheet, the formal definition is that debt (liabilities) plus equity equals assets, or any equivalent reformulation.
  • Debt to equity can also be reformulated in terms of assets or debt: D/E = D /(A – D) = (A – E) / E

• Preparation of the Balance Sheet

  • Inventory may be the largest current asset.
  • On a balance sheet, current assets are totaled and this total is shown as the line item called "total current assets. "
  • Fixed assets are the assets that produce revenues.
  • "Other assets" is a category of fixed assets.
  • Other assets are generally intangible assets such as patents, royalty arrangements, and copyrights.

• Balance Sheets

  • A standard balance sheet has three parts: assets, liabilities, and ownership equity; Asset = Liabilities + Equity.
  • Assets are followed by the liabilities.
  • The difference between the assets and the liabilities is known as "equity. " Equity is the net assets or net worth of the capital of the company.
  • A small business balance sheet lists current assets, such as cash, accounts receivable and inventory; fixed assets, such as land, buildings, and equipment; intangible assets, such as patents; and liabilities, such as accounts payable, accrued expenses, and long-term debt.
  • Biological assets, which are living plants or animals.

• Liabilities and Equity

  • If liability exceeds assets, negative equity exists.
  • Businesses can be considered, for accounting purposes, sums of liabilities and assets: this is the accounting equation.
  • In financial accounting, owner's equity consists of the net assets of an entity.
  • Net assets is the difference between the total assets of the entity and all its liabilities.
  • The assets of an entity includes both tangible and intangible items, such as brand names and reputation or goodwill.