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What Are Intangible Assets
What Are Intangible Assets
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Intangible assets – long-term assets that don’t have a physical presence – can be difficult to
wrap your head around, particularly when it comes to assessing their value. How do you put
a value on brand recognition? Is it possible to work out a market price for your latest
copyright? Find out everything you need to know about how to value intangible assets. First,
what are intangible assets?
You get the idea – an intangible asset is essentially any resource that isn’t a material object.
On the flip side, your business is likely to have many tangible assets. This is the term used to
describe physical assets such as machinery, buildings, and office equipment.
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While financial assets such as stocks, shares, and bonds may sound like intangible assets
(as they’re – at least to a certain extent – non-physical), it’s actually a little more complicated
than that. So, are stocks intangible assets? What about investments? No, these sorts of
financial assets are classified as tangible assets because they derive value from contractual
claims.
Market approach – Under the market approach, you’ll look for similar assets that have
been publicly exchanged or traded and use this data to conduct a valuation of your own
intangible asset. However, this type of information usually isn’t made public, which may
make it significantly more difficult to gather the necessary data. It’s best suited for
brand names, technology, and so forth.
Cost approach – With a cost approach, you can attempt to determine the cost of
developing the asset, as well as a reasonable rate of return. It’s best for assets like
internally developed software, while it can also be useful for early-stage start-ups that
don’t have access to enough data to make accurate revenue/sales forecasts.
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As you can see, there’s no universally agreed-upon method for how to value intangible
assets, so you should opt for the valuation method that’s best suited to the type of intangible
assets held by your business. In many cases, it simply won’t be possible to accurately
denote a value for a particular intangible asset, in which case, the asset cannot be reported
on your balance sheet.
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