What are Facebook intangibles

Intangible Assets: Easily Explained


Intangible Assets: Definition

According to International Accounting Standard 38 (IAS 38), an intangible asset is an identifiable, non-monetary asset without physical substance. In simple terms, intangible assets are intangible assets of a company such as patents, licenses, rights, goodwill that make a significant contribution to the company's valuation. Like tangible and financial assets, the intangible assets are part of the company's fixed assets.

Intangible assets can be divided into three categories:

  1. Concessions, Rights and Licenses
  2. Goodwill and business values ​​(company name, management, employee base, etc.)
  3. Purchased intangible assets


Intangible Asset: A Real-World Example

A sports club can be used to clearly explain what intangible assets are. Many sports clubs, especially soccer clubs, have become more of a business association these days, managing many intangible assets. In particular, it is about the individual players' permission to play, which is equivalent to a license-like right.

Club A signs a player from Club B for 15 million euros. Club A must list the transfer fee that it paid to Club B as acquisition costs in the bookkeeping and write it off over the period of the agreed contract period. However, it is not uncommon for the player to increase their transfer value while playing at Club A as their performance improves. The increased value must not be written off in the balance sheet, since in this case it is a self-created value.

In practice, it is the case that many clubs have significantly higher assets than the balance sheet shows.

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Intangible assets in accounting

The intangible assets of companies must be shown in the balance sheet under property, plant and equipment and financial assets. Furthermore, they are divided into two categories: the values ​​that were created by the company itself (are original) and the values ​​that were acquired for payment from third parties.

Depending on which of the two categories the intangible asset can be assigned to, there is an activation ban, an activation option or an activation obligation. In accounting, activation is understood as the inclusion of an asset on the assets side of the balance sheet.

Activation prohibition

There is a ban on capitalization for all intangible assets that are original (e.g. brands, printed titles, publishing rights, customer lists and other comparable assets created by the company itself).

Activation also excludes all expenses that:

  • have contributed to the establishment of the company in accordance with Section 248, Paragraph 1, No. 1 of the German Commercial Code.
  • were used to raise the company's equity in accordance with Section 248, Paragraph 1, No. 2 of the German Commercial Code.
  • have contributed to the conclusion of insurance carriers in accordance with Section 248 (1) No. 3 of the German Commercial Code (HGB).
  • were used for research and sales in accordance with Section 255 (2) sentence 4 of the German Commercial Code (HGB).
  • were used for own shares in accordance with Section 272 (1a) of the German Commercial Code (HGB).


Activation option

For some intangible assets, there is an option to activate them. For example, the development costs for a new product or self-developed software can be capitalized in accordance with Section 255 (2a) of the German Commercial Code. However, development costs are to be distinguished from research costs. If it is not possible to clearly separate them from each other, activation is impossible in case of doubt.

Low-value assets can also be capitalized, provided they are part of the fixed assets, are movable, wearable or can be used independently and do not exceed the value limit of 150 euros (e.g. a desk chair). These assets are listed separately in the asset accounting, but do not have to be shown in the balance sheet. According to Section 6 (2) EStG, these assets can be written off in full in the year of acquisition.

Activation obligation

There is an obligation to capitalize intangible assets that have been acquired from third parties for a fee and for which there is no reason for exclusion according to Section 248 of the German Commercial Code (HGB). Intangible assets that have been capitalized must be amortized over the period of expected use.

For example, if a company acquires a software license for 1,000 euros and a patent for 10,000 euros, these must appear as items on the balance sheet with a value of 11,000 euros.


Write down intangible assets

Intangible assets are amortized as they are normally subject to a limited useful life or a fixed term (e.g. a patent or license term or a limited useful life for a program or software).

In the event that the useful life of a self-created intangible asset cannot be clearly estimated and the depreciation tables from the Federal Ministry of Finance cannot provide any information about the useful life of the object, Section 253 (3) sentence 3 HGB stipulates that the asset will be amortized over a period of ten years.

Since the moderate lower of cost or market principle applies to fixed assets, unscheduled depreciation may also be necessary in some cases.

The information published on our site is all written and checked by experts with the greatest care. However, we cannot guarantee that it is correct, as laws and regulations are subject to constant change. Therefore, always consult a technical expert in a specific case - we will be happy to put you in touch.

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