An intangible asset of a business can be defined as an asset that do not exist physically like other assets but have equal importance in profitable performance of a business. An example of intangible asset can be a list of potential customers bought from a company that is soon going out of the business. Patent rights or copyrights purchased from the inventor of new product may also term as intangible assets. While recording and maintaining intangible assets one thing must be kept in mind that you must record only those intangible assets that you have purchased.
Sometimes a business may record intangible assets on books to make them use in order to expand cash, to take over debt or to issue owner’s equity from intangible assets. The cost related to intangible asset account is recorded in the appropriate account in the same way as cost of tangible assets is recorded in fixed asset account. Like physical assets intangible assets have also a span of useful economic life and a cost is allocated with the useful economic life of the intangible asset. This concept of allocating cost with the useful economic life of intangible asset is called amortization and is pretty much similar to the concept of depreciation. The cost of intangible asset depends upon its span of useful life for example trademark is an intangible asset that is having low cost associated with it as it may have more or less perpetual useful life span.
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