Intangible assets are the long-term resources of an entity, but have no physical existence. They derive their value from intellectual or legal rights, and from the value they add to the other assets. Intangible assets are generally classified into two broad categories: 

Intangible assets are defined as long term assets that have no physical existence but are rights that have value. These assets are not easily recognizable and are often difficult to value. Examples of intangible assets include patents, trademarks, copyrights, and goodwill.

Importance of Intangible Assets

Intangible assets are important for businesses as they provide a competitive advantage and help in generating revenue. These assets can be licensed or sold to generate revenue. For example, a company with a patent can license the use of the patent to other companies in exchange for a fee. Similarly, a company with a well-known brand name can license the use of the brand name to other companies in exchange for a fee.

Valuation of Intangible Assets

Valuing intangible assets is often difficult as they do not have a physical existence. There are different methods that can be used to value intangible assets, such as the cost method, the income method, and the market method. The cost method involves estimating the cost of creating or acquiring the asset. The income method involves estimating the future cash flows that the asset will generate. The market method involves comparing the asset to similar assets that have been sold in the market.

Accounting for Intangible Assets

Intangible assets are recorded on the balance sheet and are amortized over their useful life. Amortization is the process of gradually reducing the value of the asset over its useful life. The useful life of an intangible asset is the period over which it is expected to provide economic benefits.

Conclusion

In conclusion, intangible assets are long term assets that have no physical existence but are rights that have value. These assets are important for businesses as they provide a competitive advantage and help in generating revenue. Valuing and accounting for intangible assets can be a challenging task, but it is important for businesses to accurately record and report these assets on their financial statements.

Assets which have no physical existence are known as intangible assets. for eg, Goodwill