Understanding Intangible Assets: Key Characteristics & Value

Assets come in three main forms: tangible, intangible and monetary. The two main characteristics of an intangible asset are that it is not physical, meaning it exists as a legal power, and that it is identifiably separate from other assets. An intangible asset has value to the company, though putting a figure on this value can be more subjective than with physical items or financial assets.

Intangible

Intangible means that an asset does not take physical form in the same way as a factory, machine or retail outlet does. The definition covers the asset itself rather than the expression of an asset. For example, a business may hold patent certificates granted by the relevant authorities. In this case the asset is not the certificate itself, even though that is the legal proof, but rather the intellectual property, meaning the patent is an intangible asset.

Identifiable

An intangible asset must be identifiable. There are two main components to being identifiable. The first is that the asset comes from a legal or contractual right, such as an existing agreement to supply a particular customer. The second is that the asset can be separated from assets and could be sold or otherwise transferred in its own right.

Other Characteristics

As with all assets, an intangible asset must be under the control of the business, meaning it has the ability to gain from the use of the asset, for example by having the right to make products protected by a trademark. There must also be a reasonable expectation that these gains will continue in the future.

Exceptions

Monetary assets do not come under the classification of intangible assets. This is the case even if the asset otherwise meets the criteria. Examples of monetary assets include money deposited in a bank account, money lent to other companies, investments in financial products, and money that is owed by customers.