Intangible Assets/Intangible assets accounting
Intangible assets are identifiable long-term assets of a company having no physical existence.
In this video, you will find the intangible assets list, type, amortization, goodwill example and presentation in noncurrent area of the balance sheet.
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Goodwill, copyright, trademarks, and patents, etc
I hope, you have understood the definition of intangible assets. If you did not understand, then you must stop the video and go to the back and watch again.
Let me discuss few famous example of intangible assets.
Intangible assets Examples
Goodwill in accounting is an intangible asset that arises when a buyer acquires an existing business.
Let me ask my friend Jon. Jon can you give a better example to explain the goodwill.
Thanks for requesting Sarra, Let me provide an example of goodwill in practically real time business.
Let say, Company A bought Company B. The fair value of company B all assets are equal to $25,000, and Company A had paid $30,000. The $5,000 of the high amount of the Company A paid is Goodwill value of the company B.
Let explain other examples
A patent is the exclusive, legal right to use a process or create and sell a product for 20 years.
An exclusive right granted by the federal government to publish and sell various works.
A trademark is a legal right to exclusively use a symbol, name, phrase, song, or logo.
Other intangible assets
franchise agreements, marketing rights, video, computer software, databases and trade secrets, etc
Intangible assets are reported on the balance sheet in long-term assets area.
Fixed Assets or long term Assets
• Property plant and equipment’s
• Intangible Assets
In Balance Sheet Representation of intangible assets. In this example, you will note the point of representation of intangible assets. Here you see, intangible assets is part of long-term assets. It is showing below property plant and equipment and long-term assets.
Intangible assets amortization
In the context of intangible assets accounting, amortization is the process of charging the cost of an intangible asset as expense over its useful life. It’s the same concept like Depreciation for tangible fixed assets. For intangible assets, we use the word amortization. But Depreciation or amortization both have the same idea.
After the understanding the idea of amortization. Now we will learn the accounting entries for amortization. First, we need to understand the formula for amortization.
Formula for amortization
The popular straight-line method is used for amortization of the intangible assets.
Formula for amortization
Amortization = Cost of intangible assets less salvage value divided by useful life
Cost of intangible assets less salvage value = Amortizable Cost
intangible assets amortization journal entry
Amortization Expense is debit
Accumulated amortization is credit
After calculation of amortization expense amount. Then we will write Journal entry Amortization Expense debit and credit Accumulated amortization.
Let me explain this point again,
A company buys the Patent $10,000 and useful life is 10 year and 0 salvage valve.
Amortization expense = ($10,000-$0)/ 10 = $1,000
Journal Entry is
Amortization Expense-Patent Debit $1,000
Accumulated amortization –Patent Credit $1,000
Effect of this entry
The Amortization Expense will go to the income statement and reduce the income of the company.
The Accumulated amortization will go to balance sheet as a contra account and less from cost of the intangible assets.
Let me show you presentation of intangible assets in balance sheet.
I hope, you have understand the definition, examples of intangible assets, amortization and presentation in balance Sheet.