Alright, so, up to this point in this unit, we've been focused on fixed assets that have a physical form, like machinery or land or buildings, things like that, right? But now I want to think about a different type of long term asset, this is an intangible asset. Let's talk about different types of those. So intangible assets. Well, they're intangible, right? They're gonna be long lived assets that they're gonna help us for a long time, but they have no physical form. We can't just go into the factory and say, hey, there's our machine, no, it's, there's no physical form, but they give special rights to the company and they are assets of the company. Okay, so we're gonna discuss what all the a lot of the most common types of intangible assets are, but there's 22 ways that we deal with intangible assets. The first type of intangible assets are gonna be intangible assets with limited lives. Okay, so these don't last forever. They're gonna have some sort of useful life similar to when we were dealing with fixed assets. Okay, so these limited live intangible assets. What we're gonna do is we're going to do amortization. We're gonna advertise these, these intangible assets over there useful lives. Now, amortization, it's just another fancy word that we use for depreciation. Okay, so amortization is just the word we use, when we're, when we're depreciating are intangible assets. Okay, so when we have an intangible asset with a limited life, we say, we advertise it. Okay, and when we do intangible assets and we advertise them in a very similar way to depreciation, it's always going to be on a straight line basis. You're not gonna see us using decline, double, declining balance or units of production. No, when we deal with it, it's just gonna be on a straight line basis. So this actually ends up being super easy, as long as you know what it is. The only difference is we're not gonna have an accumulated amortization account. Remember when we are dealing with depreciation expense, we always had this contra asset of accumulated depreciation? Well in this case there is no accumulated amortization account, there's no such thing. Okay, what we do is we just directly credit the intangible asset itself, right? The assets gonna have some debit value, just like all assets. And then as we advertise it as we do amortization expense, that goes to the income statement, well, we're the credit, we're gonna be debating amortization expense and we're going to credit the asset itself the intangible assets, so it's gonna lower the value that way. Cool. So that's the first type of intangible asset and that's mostly what you're going to deal with in this class is just simple amortization problems where you're gonna be calculating calculating very similar to straight line depreciation. The other type are intangible assets with unlimited lives. Okay? And we're gonna talk about some of these because they still like to, you know, test your vocabulary and test how you know about these unlimited life intangible assets, but they are not advertised right? Because they last forever. So there's no reason for us to be advertising them over a certain time period if they're gonna last for essentially forever. But what we are going to do with these is we're gonna annually test them for impairment of value, right? Because maybe they aren't worth what they are on our books. So we're gonna have some special tests to impair them. If we see that they've lost value. We're not going to talk about those in this lesson. We're going to focus on limited live assets and how we do amortization expense as well as we're gonna talk about the different types of intangible assets here. Okay, So there's gonna be many different types of intangible assets. So why don't we start with the most common one. And in this video we'll go ahead and calculate an amortization expense and then we'll pause and we'll talk about all the different types of assets of intangible assets. Cool, so the first one here, that one you're probably going to deal with the most is patents when the company patents an idea something uh some sort of special thing they came up with. Well, it's the exclusive right to produce And sell an invention for and the US government gives you a patent for 20 years. Okay, so you get this special right to produce it and sell it for 20 years. However the useful life might not be the same as the life that the The government gives you this patent for right. Maybe you you've made this patent for 20 years. But competitors come to the market and start copying and selling similar assets to your similar ideas to your idea much faster. Think about, you know, when those first smartphones came out? Maybe I'm not exactly sure, but I'm guessing the iPhone might have been the first one that came out and it revolutionized the industry and then all sorts of similar products came out and started eating up its profits as well. Right? Even though they still had the market on the iphone, while there were other similar products that may be decreased the value of the iphone patent since it wasn't the only one on the market anymore. So the useful life of a plant patent Maybe less than 20 years. Okay. But they're gonna have to tell you that in the problem. They'll say something something like the government granted a 20 year useful life. But the company only expects it to be useful for 15 years for 10 years, for eight years, whatever it might be. They're gonna have to give you that information in the problem. All right. So let's check out this this quick problem right here about amortization expense. And then we'll talk about the rest of the assets in the next video. Techno Cor purchased the patent from invent a court for 170,000 on January one. So there we go. That's gonna be the cost, right? That's gonna be the cost of the patent and techno court believes it will be able to produce the product for five years before competition renders the patent obsolete. Alright. So that's just what we were talking about. It's not gonna get the full life of the patent. They're only gonna get five years of value before competitors start figuring out what they're doing. So, we want to journal eyes the purchase of the patent when we first bought it and then amortization expense for the year. All right. So let's go ahead. The first thing we wanna do is the purchase. So let's do the purchase over here. And what do you guys think this journal entry is going to look like it's much like many different journal entries that we've done in the past. We're purchasing something here, but we're purchasing a patent. So what do you think the debit is going to be in this transaction? We're going to debit patents, right? This intangible asset that we have? We're going to debit patents because we got a patent and what do you think the debits gonna be for? It's gonna be for that $170,000 right? We paid 100 $70,000. And what do you think the credit is going to be in this transaction? Well, we paid for it with cash, right? We paid for this patent. So we're going to credit our cash for 100 and $70,000. All right. So that's when we first purchased the the asset, this intangible asset and now it's time to advertise it. So when how long are we gonna advertise this asset for? Is it gonna be the 20 years that the government gives us the patent? No, it's the five year useful life that we've determined. Right, so we're gonna use our straight line method. And one thing to note is with these intangible assets. Well, if it's going to be obsolete after these five years, there's not gonna be any salvage value. We generally don't talk about salvage value or residual value. When we do intangible assets. We just take the whole amount and depreciate. Excuse me? Depreciate, advertise the entire thing. 170,000 divided by five. So what's gonna be our annual amortization expense? 1 70 divided by five. Well, we're gonna advertise 34,000 per year. That's gonna be our amortization expense. So notice it's straight line basis and it's actually really simple. So let's do that amortization entry. So that entry. Well, what's gonna be our debit our expense, right? We're gonna have amortization expense and I'm gonna shorten it to a more expense. Okay expense. This is going to the to the income statement and it's for 34,000 as a debit. Right? So that's gonna lower our income, amortization expense. Has a debit. What about our credit is it accumulated? Amortization? No. Right? We don't have an accumulated amortization account. We just directly lower the value of the patent. So we're gonna credit patents here to lower the value of the patent by the 34,000. And it's as simple as that. That's all we have to do for amortization and we're gonna make that same entry every year. Okay, So there's our amortization and there's our purchase entry. So what happened here? We purchased the patent For 170,000 And cash. We had go out for 170,000. So nothing really happened in our assets in that first situation, right? We just paid for for an asset. So we got rid of cash and we got an asset. So our assets stayed the same level, just changed what they were. And then in that second entry, while our patents went down, right? We took 34,000 out of our patents. So those went down by 34,000 and that amortization expense. Well that lowers our equity, right? Because it went to the income statement and it was a decrease in art in our income. So the amortization, It's gonna come out here in our equity for 34,000 and that keeps our equation balanced, right? Because we had a decrease in our assets of 34,000 after the amortization and a decrease in our equity. So everything stays balanced there. Alright. So let's pause here and then we'll talk about the remaining types of intangible assets that you're likely to come across. All right, let's do that now.

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?