Question

What are the three categorization for intangible assets and amortized or impaired (provide examples)?

Answer 1

Solution:

Intangible assets are very important to classify and accounting for fair view of balance sheet as well as financial statement. The intangible assets are classified into various parts by their useful life and by their nature. The total cost of the intangible assets is amortized throughout the useful life of the assets. Generally, the intangible assets are classified into three major parts. The three major classification of the intangible assets are Goodwill, Patent and Trademark.

The goodwill which are purchased at the time of acquisition and merger comes into the balance sheet under intangible assets. The total value of the goodwill is amortized through profit and loss by divided the total cost of the goodwill with the useful life of the goodwill. As example the total cost of the goodwill is $10,000 and the useful life of the same is 5 years. So the amortization expense for the goodwill is $(10,000/5) = $2,000. In the same manner the patent and trademark is treated as intangible assets and the same is recorded in the balance sheet under intangible assets. The total cost of the these intangible assets are divided by the useful life of the assets and the same is write off through profit and loss account.

References:

Bianchi, P. (2017). The economic importance of intangible assets. Routledge.

Ivanov, G., & Mayorova, E. (2015). Intangible assets and competitive advantage in retail: case study from Russia. Asian Social Science, 11(12), 38.