Common Intangible Assets

Brian Krogol
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Alright. So let's go over the most common types of intangible assets. So we talked already about patents a little bit right the exclusive right to produce and sell an invention for 20 years and remember that that useful life could be less than the actual grant from the government. So the government tells, you hey, you're protected For 20 years. But maybe competitors figure out your product and start making similar products in less time than that. So you would only advertise it over that useful life, not the full life in that case. Alright. So those were patents. Let's continue on to the next one here with copyrights. So copyrights are similar to patents but copyrights are dealing with more creative pursuits. So this is the exclusive right to sell some sort of work of art. Okay. And this includes all sorts of things that will include books, music, movies that get made and it will even include computer software. So the government looks at computer software as a work of art Interesting enough. Cool. So these copyrights, well, they're gonna last for a period of 70 years beyond its creators life. So just like with patents, copyrights may be purchased by another another company. So maybe the author of a book has the copyright when they made the book, they they sent the copy to the government and they got a copyright, well they can sell that asset that intangible asset. They can sell it to a publishing company for a price. And then the publishing company will then advertise it over its useful life. So that's usually how you're gonna see it is that they're just gonna be some purchase of this intangible asset and then we'll advertise it over the useful life. Cool, So the next one here is a trademark, trademarks have to do more with like a symbol or something like that. So this has to do with a symbol or a brand name. So now we're protecting something a little different than an invention, a work of art, right? It's a brand name or even a slogan. So now we're protecting something like that. And some of these trademarks have a finite life, there's gonna be some sort of contracted finite life. And then we're gonna advertise it, right, If it's a finite life, they're going to tell you how long the life is and we advertise it over that life, while other ones will have an infinite life and indefinite life infinite. They're going to tell you that they have to give you all this information in these problems. That's what ends up making these problems so easy. Even though we're talking about abstract things, intangible assets in the end, when they give you an accounting problem, they have to be very concrete with the information they give you. All right? So, trademarks, you're gonna see these types of symbols that I'm sure you're familiar with the tM symbol, our symbol. Those are things that have been trademarked. Okay, next, we have franchises and licenses. So these are privileges that are granted by a private business. So what's a very common franchise? We think about like a Mcdonald's, right? And Mcdonald's doesn't own every Mcdonald's restaurant around the country around the world know people give money to Mcdonald's to say, hey, let me open a Mcdonald's. Well, this is an intangible asset. This franchise, this license that they get. So it's, it's a privilege granted to sell its products. Right? So I can't just sell a Big Mac without permission from Mcdonald's. Cool. So these Mcdonald's restaurants that are operated by what are called franchisees, the people who pay Mcdonald's to be able to operate one. Well, they pay fees to operate a Mcdonald's, they pay advertising fees because Mcdonald's does these big advertising campaigns, they have to give a portion of their revenue to make to the Mcdonald's corporation, whatever it is, you're not gonna have to deal with franchise accounting in this class. I'm just exposing you as a type of intangible asset. Okay, so generally these are gonna have infinite lives these franchises and licenses. Another important one here that's an interesting intangible asset is Goodwill. Okay, so Goodwill. This only occurs when you purchase other company's. Okay, Goodwill comes out of the purchase of another company. So this is the value above the market value that you pay for for the purchase of another company. So let's say the market value, there's a company on the market that has a market value of a million dollars and you go in there and you pay the company and you say, hey I'll pay you a million 200,000 for your company because we see the extra value that you bring to your customers, customers have a certain loyalty to their brand, whatever it might be. You're willing to pay extra because this company has these intangible qualities that are not on the books. Right? So another example would be that customers are are are really happy with the company because of its green efforts. It has a lot of environmental uh persuasion and it's done all these great things with green marketing campaigns and you're willing to pay a little extra because customers prefer your brand because it's a good brand. Okay, so that's what good will is. It's intangible in this sense because you paid extra for these intangible qualities of the company. Alright. And goodwill is gonna have an infinite life. Okay, and this is one that gets tested for impairment annually. Right? We have to test our goodwill when we've purchased other companies. We have to see is it really worth what it was worth when we first purchased it? Maybe we paid 200,000 extra for the brand at that time. Is it still worth that extra 200,000? So we're gonna have to test it for impairment and we'll talk about that in another video if you need to know it. And the last one is research and development costs. So you gotta think about like a drug company that's constantly researching new drugs. Well, it's spending all this money on research and development, but it doesn't get to make it an intangible asset. This is a very specific one because it, it has, it would have certain implications if you could start making assets out of your research and development, what if you're researching all these drugs, but then you can actually end up selling the drug. So it would, it would actually be pretty weird if you could make assets out of research and development costs. So this is the costs incurred in creating new products and the way gap looks at it is like, hey, that's a, that's an operating cost of business, right? If you're in the business of creating and inventing new products, well, you're gonna have to be researching and developing, right? So you don't get to make an asset out of it. When you get research and development costs, you must expense them as incurred. They must be expensed as incurred. They do not become intangible assets. Okay, There are specific cases that you talk about in high level accounting courses with these research research and development costs, but for all intents and purposes, most of the time, 99% of the time, you just have to expense them as they are incurred. So those are the most common types of intangible assets, you might run across, that's about it. For this video. Why don't we move on to the next topic?