What are non-current intangible assets for a business?
- BTEC National
- Pearson BTEC
Last updated 13 Nov 2023
Non-current intangible assets are long-term assets without physical substance that derive their value from intellectual or legal rights. These assets provide long-term economic benefits to a business.
Here are some examples of non-current intangible assets:
- Goodwill arises: when a business acquires another business and pays more than the fair value of its identifiable net assets. Goodwill represents the reputation, customer relationships, and other non-physical attributes that contribute to the acquired company's overall value.
- Exclusive Rights: Patents grant exclusive rights to inventors for a certain period, typically 20 years, allowing them to exclude others from making, using, or selling their inventions.
- Branding Elements: Trademarks, including brand names, logos, and symbols, are non-current intangible assets that represent a business's brand identity and are legally protected from use by others.
- Artistic and Literary Works: Copyrights protect original works of authorship, such as books, music, and software, giving the creator exclusive rights to reproduce, distribute, and display the work.
- Franchise Agreements:
- License to Operate: Franchise agreements grant businesses the right to operate under the brand, trademarks, and business model of a franchisor.
- Customer Lists:
- Valuable Relationships: Customer lists and relationships are considered intangible assets when they are acquired or developed and have economic value to the business.
- Licenses and Permits:
- Legal Permissions: Certain licenses and permits obtained by a business, such as broadcasting licenses or environmental permits, may be considered non-current intangible assets.
- Developed Software: Costs associated with the development of proprietary software, not purchased from external vendors, are considered non-current intangible assets.
- Long-Term Agreements: Contracts with suppliers, customers, or other parties that have a significant remaining value and extend over several periods can be considered non-current intangible assets.
- Research and Development (R&D) Costs:
- Developed Technologies: Costs incurred in developing new technologies, processes, or products may be capitalized and treated as non-current intangible assets if certain criteria are met.
Non-current intangible assets are reported on a company's balance sheet and are subject to amortization (for finite-lived assets) or impairment testing. The amortization process allocates the cost of the intangible asset over its useful life, reflecting the gradual consumption of its economic benefits. Impairment testing is conducted to ensure that the carrying amount of the asset is not higher than its recoverable amount.