Types of Intangible Assets: Explanation with Examples

Types of Intangible Assets: Explanation with Examples

Types of intangible assets:

There are various types of intangible assets, however, in this article, we are about to discuss the six most important types of intangible assets which are patents, trademarks, copyrights, goodwill, franchises, and license.

 

1- Patents

A patent is an exclusive right that enables the inventor to manufacture, sell, or control an invention for 20 years from the date of the grant. The federal government issues such rights to inventors.

A patent is non-renewable. However, companies can extend the legal life of a patent by obtaining new patents for improvements or other modifications in the basic design.

The estimated useful life of the patent may also change if technology or consumer tastes change. Patent holders amortize the patent cost over its 20-year legal life or its useful life, whichever is shorter. 

Patents include three types: Utility patents, plant patents, and design patents. The utility patent is one of the most common patents, we also know it as a patent for the invention.

 

2-Trademarks or Trade name

A trademark or tradename is a name or symbol used to identify a business and its products. A business logo is an example of a trademark. Trademarks are usually created for names, symbols, catchphrases, figures, and lyrics.

The creator or author obtain the exclusive legal right to the trademark or trade name by registering it. When a company purchases the trademark or trade name, its cost is the purchase price and recorded as an intangible asset in a balance sheet. In case a company develops the trademark or trade name, any costs related to these activities are expensed as incurred.

The legal protection of a trademark prevents other businesses from using the specific image, symbol, or text associated with the brand.

 

3- Copyrights

These are exclusive rights to publish and sell a literary, artistic, or musical composition. Copyrights protect the works from reproduction or derivative use without the consent of the copyright owner (usually the author or publisher).

The federal government issues copyrights and extends for 70 years beyond the author’s death. The costs of copyright include all costs of creating the work plus any administrative or legal costs of obtaining the copyright. 

In general, the useful life of copyright is considerably shorter than its legal life. Businesses amortize copyrights over a relatively short period.

 

4- Goodwill

Goodwill is the largest intangible asset that appears in the balance sheet of the organization. It refers to the price or value above the market value of the tangible assets of a company. The examples of goodwill include: 

  • Exceptional management
  • A desirable location
  • Excellent customer relations
  • Skilled employees
  • high-quality products
  • Pleasant relations with labor unions

Similar to trademarks, goodwill is also not amortized because it has an indefinite life. Business entities report goodwill in the balance sheet under intangible assets.

 

5- Franchises

A franchise refers to a contractual arrangement between a franchisor and a franchisee. The franchisor grants the franchisee the right to sell specific products or services, or use certain trademarks or trade names, usually within a designated geographic area. 

Fast-food restaurants like Mcdonalds and KFC are well-known examples of franchises.

 

6- License

License is known as the contractual right to use another’s property, whether it is a patent, trademark, copyright, lease, or exploration for natural resources. Examples of license include:

  • Using city streets for a bus line or taxi service 
  • Using public land for telephone and electric lines
  • And the contractual right to use airwaves for radio or TV broadcasting.

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