Editing Intangible asset (section)

== Financial accounting ==

=== General standards ===

The [[International Accounting Standards Board]] (IASB) offers some guidance (IAS 38) as to how intangible assets should be accounted for in [[financial statement]]s. In general, legal intangibles that are developed internally are not recognized and legal intangibles that are purchased from third parties are recognized.<ref name=":0">Webster, Elisabeth; Jensen, Paul H. (2006). "Investment in Intangible Capital: An Enterprise Perspective." ''The Economic Record'', Vol. 82, No. 256, March, 82–96.</ref> Wordings are similar to IAS 9.

Under US GAAP, intangible assets<ref name=":0" /><ref>{{Cite web |title=What are intangibles? |url=https://www.royaltyrange.com/home/blog/what-are-intangibles |access-date=2023-03-08 |website=www.royaltyrange.com}}</ref> are classified into: Purchased vs. internally created intangibles, and Limited-life vs. indefinite-life intangibles. <ref>{{Cite web |title=10.4 Intangible assets |url=https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/not-for-profit-entities/Not-for-profit-entities/Nfp10_1/104_Intangible_assets_20.html |access-date=2025-05-21 |website=viewpoint.pwc.com |language=en-US}}</ref>

=== Expense allocation ===

Intangible assets are typically expensed according to their respective life expectancy.<ref name=":0" /><ref name=IAS38 /> Intangible assets have either an identifiable or an indefinite useful life. Intangible assets with identifiable useful lives are [[Amortization (accounting)|amortized]] on a straight-line basis over their economic or legal life,<ref>For international legal lives by class of intangible asset, see the table in [http://www.taxamortisation.com/tax-amortisation-benefit.html Tax amortization lives of intangible assets]</ref> whichever is shorter. Examples of intangible assets with identifiable useful lives are copyrights and patents. Intangible assets with indefinite useful lives are reassessed each year for impairment. If an impairment has occurred, then a loss must be recognized. An impairment [[Income statement|loss]] is determined by subtracting the asset's fair value from the asset's book/carrying value. Trademarks and goodwill are examples of intangible assets with indefinite useful lives. Goodwill has to be tested for impairment rather than amortized. If impaired, goodwill is reduced and loss is recognized in the Income statement.

=== Research and development ===
[[Research and development]] (known also as R&D<ref name=":0" />) is considered to be an intangible asset (about 16 percent of all intangible assets in the US),<ref>Bureau of Economic Analysis (2013). ''Preview of the 2013 Comprehensive Revision of the National Income and Product Accounts.'' https://www.bea.gov/scb/pdf/2013/03%20March/0313_nipa_comprehensive_revision_preview.pdf {{Webarchive|url=https://web.archive.org/web/20170702045919/https://www.bea.gov/scb/pdf/2013/03%20March/0313_nipa_comprehensive_revision_preview.pdf |date=2017-07-02 }}</ref> even though most countries treat R&D as current expenses for both legal and tax purposes.<ref name=":0" /> Most countries report some intangibles in their National Income and Product Accounts (NIPA).{{Citation needed|date=August 2020}} The contribution of intangible assets in long-term GDP growth has been recognized by economists.<ref name="federalreserve.gov">[[Carol Corrado|Corrado, Carol]]. Charles Hulten, and Daniel Sichel (2006). ''Intangible Capital and Economic Growth.'' Federal Reserve Board Discussion Paper N. 2006-24. April. http://www.federalreserve.gov/pubs/feds/2006/200624/200624pap.pdf</ref> Also of note, acquired "In-Process Research and Development" (IPR&D) is considered an asset under US GAAP.<ref>{{Cite web|url=https://assets.kpmg/content/dam/kpmg/pdf/2014/01/Defining-Issues-O-1401-04.pdf|title=AICPA Issues Practice Aid on Acquired In-Process Research and Development Assets|work=Defining Issues|publisher=KPMG, LLD|date=January 2014|edition=14-4}}</ref>

IAS 38 requires any project that results in the generation of a resource to the entity be classified into two phases: a research phase, and a development phase.

The classification of research and development expenditure can be highly subjective, and it is important to note that organizations may have ulterior motives in their classification of research and development expenditures.{{citation needed|date=November 2013}}

=== Taxation ===

For personal income tax purposes, some costs with respect to intangible assets must be capitalized rather than treated as [[Tax deduction|deductible expenses]]. Treasury regulations in the USA generally require capitalization of costs associated with acquiring, creating, or enhancing intangible assets.<ref>Treas. Reg. § 1.263(a)-4.</ref> For example, an amount paid to obtain a [[trademark]] must be capitalized. Certain amounts paid to facilitate these transactions are also capitalized. Some types of intangible assets are categorized based on whether the asset is acquired from another party or created by the taxpayer. The regulations contain many provisions intended to make it easier to determine when capitalization is required.<ref>Donaldson, Samuel A. Federal Income Taxation Of Individuals: Cases, Problems and Materials (2nd ed.). St. Paul: Thomson West, 2007. p. 200.</ref>

Given the growing importance of intangible assets as a source of economic growth and tax revenue,<ref name="federalreserve.gov"/> and because their non-physical nature makes it easier for taxpayers to engage in tax strategies such as [[income-shifting]] or [[transfer pricing]],<ref>"Action Plan on Base Erosion and Profit Shifting." (2013) Organisation for Economic Co-operation and Development (OECD). http://www.oecd.org/sti/inno/46349020.pdf</ref> tax authorities and international organizations have been designing ways to link intangible assets to the place where they were created, hence defining nexus. Intangibles for corporations are [[Amortization (tax law)|amortized]] over a 15-year period, equivalent to 180 months.

Definition of "intangibles" differs from standard accounting, in some US state governments. These governments may refer to stocks and bonds as "intangibles".<ref>{{Cite web |url=http://www.docstoc.com/docs/28185447/The-Florida-Intangible-Tax |title=Florida Intangible Tax |access-date=2010-10-02 |archive-date=2015-05-16 |archive-url=https://web.archive.org/web/20150516034049/http://www.docstoc.com/docs/28185447/The-Florida-Intangible-Tax |url-status=dead }}</ref>