TABLE OF CONTENTS Intangible assets represent one of the greatest challenges in accounting as their value can be considerable, but their lack of physical substance can make proof of their existence and true worth difficult to validate.
The nature of these assets can be seen from their formal definition:
UK GAAP (FRS 10 Goodwill and Intangible Assets)
A non-financial fixed asset that does not have physical substance, but is identifiable and is controlled by the entity through custody or legal rights
International GAAP (IAS 38 Intangible Assets)
Identifiable non-monetary assets without physical substance
The variety of intangible assets is considerable and includes patents, royalty agreements, franchises, intellectual property, licences and goodwill. To streamline our understanding of the significant changes arising from the transition to international accounting rules, we will consider three broad categories.
Goodwill
Other intangibles
Research and development
Irrespective of the accounting system used, internally generated goodwill such as a reputation for good service built up over many years cannot be recognized as an asset in the balance sheet. It is not separately identifiable from the other assets of the business, and as such it would be impossible to accurately measure its value.
Often representing a significant proportion of balance-sheet assets this asset can be recognized as it has effectively been purchased as a component of the consideration paid by the acquirer. However, this does not imply that purchased goodwill is easily identified as there are other intangibles such as brands and...
