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Intangible Assets

Intangible assets are non-physical assets such as patents, copyrights, trademarks, franchises, trade name, goodwill, knowledge and know-how. In other words, they cannot be seen or physically felt. They are mostly the outcome of the considerable amount of time and effort invested in creating them. The special value they enjoy is derived from the legal rights they are accorded, and their earning capacity, gaining them a competitive edge over their rivals. As it is non physical, it is indestructible by any means. However, deterioration can occur to their quality due to obsolescence, failure in operation, etc.

Patent is a permit granting exclusive rights to an individual or firm to make, use, and sell an invention. Patents have a protection period of 7 years to 20 years in different countries. For example, in the US, they are granted for 17 years. Costs incurred in researching and developing the patented product are not capitalized, but are treated as expenses.

Copyright protects its owner’s exclusive right to published or unpublished original work from unauthorized duplication. Copyright owner exercises the exclusive right to reproduce and commercialize artistic works which cover a wide range including books, articles, musical compositions, movies, advertisements, product and graphic designs, etc. To qualify for a copyright, a work must have originality and at least some creativity. Like other intangible assets, copyright may be amortized over a period of forty years.

Trade marks include a symbol, word or words, logo, design, graphics or their combination legally registered or established by use as representing a company or product. A trademark is developed by a company itself and not purchased from another source. It is commonly identified by the use of the symbol ‘TM.’ A trademark gives the owner the legal protection against its unauthorized use, and although such a legal right is usually granted for 7 to 20 years, it is renewable. All expenditures incurred in the registering and defending the trademark are amortized over its entire life.

Franchise owners enjoy the privilege to market a product or service using a trademarked name. The trademarked name is an instantly recognized name and this gives the franchisee considerable benefits in using it. The cost of the franchise is amortized over its entire useful life limited to forty years.

Last Updated (Monday, 13 September 2010 20:00)