Intangible assets are long-term assets that do not have physical substance and often relate to legal rights or advantages held by a company. Examples of intangible assets include patents, copyrights, trademarks, franchises, organization costs, leaseholds, and leasehold improvements. The allocation of intangible assets to the periods they benefit is called amortization.
Intangible assets are typically recorded at acquisition cost, or the amount paid for them. Some intangible assets, such as goodwill and trademarks, may be acquired at little or no cost. However, these assets should only be recorded on the balance sheet if they were purchased from another party at a price established in the market place.
The Accounting Principles Board (APB) has stated that a company should record the costs of intangible assets acquired from others as assets. However, the company should record the cost of developing intangible assets as expenses. Intangible assets with a determinable useful life, such as patents and copyrights, should be written off through periodic amortization over that useful life, similar to the way plant assets are depreciated. Even intangible assets with no measurable limit on their lives, such as goodwill and trademarks, should be amortized over a reasonable length of time, not exceeding forty years.