Intangible assets are those kinds of assets that do not have a tangible form, such as manufacturing equipment or finished products, however, at the same time, they contribute to an increase in the company's income in one way or another. Such assets include a wide variety of objects. It can be a license or a patent, or it can be a computer program or even a company logo.
A distinctive feature of intangible assets is the fact that they serve the company for a long period of time, more than a year, as explained in accounting terminology. In this they remind the basis of the asset and, like fixed assets, they lose their value over several reporting periods. So, to reflect this phenomenon, we need to use the help of depreciation.
Depreciation of intangible assets is somewhat different from the more common depreciation of industrial equipment. The thing is that in this case we do not know exactly how long an intangible asset will benefit the company. Of course, in some cases this is directly reflected in a legal manner. For example, a patent may be granted for a specific period of time. If this period is not indicated, then it is generally accepted in world practice that intangible assets serve for 20 years, which means that depreciation of intangible assets should be carried out over this period of time. However, for tax purposes, the period is usually reduced to 10 years.
It is worth noting that in some cases the depreciation of intangible assets is not applicable at all. Such cases include the company's reputation. Of course, it is not the reputation of the company in the usual sense of the word, because it is impossible to determine it in monetary terms, but the difference between the purchase value of the company and its assets, which, according to the accounting rules, should be kept on the balance sheet.
However, this case is a particular one, and in most cases, depreciation will still have to be calculated. So, you need to know the methods of depreciation of intangible assets, which are most common in world practice. The simplest method is linear. In this case, all that is required of you is to divide the total value of the intangible asset, which is reflected on the balance sheet, by the estimated useful life. In the future, it is necessary to write down the resulting amount annually in the expenses of the enterprise.
As for the non-linear method, in this case, the write-off of the value of intangible assets on the balance sheet as expenses is carried out in uneven amounts. There are various ways to accrue depreciation of intangible assets by the nonlinear method, but their general principle is that the more time has passed since the acquisition of an intangible asset, the less depreciation charges should be.
The method of crushing balances, for example, involves subtracting a certain percentage of the residual value of assets each year. Usually used is calculated by a linear method, the percentage times two. In the last year of useful life of the asset, the entire balance is deducted. In addition, sometimes a depreciation method is used , depending on the volume of output. The larger the output, the more depreciation should be written off.
As you can see, the amortization of intangible assets is a rather complicated process, and therefore it should be carried out exclusively by a professional accountant who is well versed in the essence of the problem. As for the managers of the enterprise, in this case the final result is more important to them, and not the calculation method.