On just about any company's balance sheet, somewhere between the 'Current Assets' and 'Current Liabilities' sections is a collection of long-lived, revenue-producing assets broken up into two categories - 'Property, Plant, and Equipment' (PP&E) and 'Intangible Assets'. PP&E often contains such non-current assets as land and buildings, motor vehicles, office equipment, computers, and plant and machinery. Intangible Assets is a much broader category including anything from copyrights and patents to trade secrets, customer lists/leads, noncompetition agreements, franchises, and goodwill.
The accounting methods for PP&E is very similar to those of Current Assets, though there are significant differences in the costs to be capitalized according to GAAP (the "generally accepted accounting princiapals" as determined by the Financial Accounting Standards Board, or FASB). Accounting for Intangible assets can be much more difficult, though – often, there are different rules for amortization, valuation, and estimation.
For instance, there is much more uncertainty associated with intangible assets, so it’s much more difficult to account for the projected future benefits. According to the Spiceland text, “it’s often very difficult to anticipate the timing, and even the existence, of future benefits attributable to many intangible assets…in fact, this uncertainty is a discrimintating characteristic of intangible assets that perhaps better distinguishes them from tangible assets than their lack of physical subtance,” (Spiceland, Sepe & Nelson, 2011).
Intangible assets with lives that have a foreseeable end are amortized, whereas ones with indefinite useful lives are not (Spiceland). Determining whether or not an intangible asset has a limited life or not can be tricky; companies must consider the fact that there may be a similar product or object already in existence, and, if so, base their projections on that. Innovators who develop an idea that is completely...
Cited: Spiceland, J. D., Sepe, J. F., & Nelson, M. (2011). Intermediate accounting. (6th ed ed.). New York: McGraw-Hill/Irwin.
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