Intangible Assets and Accounting Treatment

Intangible assets are long-term assets used in the production of goods and services. They are similar to property, plant and equipment except for their lack of physical properties. Example of intangible assets include copyrights, patents, trademarks and goodwill. The cost of intangible assets is amortized by systematic charges to income over the period estimated to be benefited, but not to exceed 40 years.

Patents, copyrights and most franchises are examples of intangible assets with determinate lives, established by law or by contract. Other intangible assets, such as secret processes and goodwill, have no established term of existence, and the expected period of benefit may be indeterminable at the tiem of acquisition.

New accounting rules from the FASB, Statement no. 142, require companies to stop writing-off goodwill annually. The new rules require companies to review their goodwill for impairment. If the impairment occurs, then they must write them down to reflect the fair value of goodwill.

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