Intangible assets: what applies to them, classification and accounting

Intangible assets are property that does not have a physical form, but is of material value to an enterprise . In addition, they, like fixed assets, are aimed at making a profit in the course of financial activities. Accounting for this group of funds is somewhat different from collecting information about the rest of the property. We will get acquainted with the features of its organization and the structure of the assets themselves in this article.

Specific features

What are intangible assets? What applies to them? A novice accountant is probably tormented by similar questions. If the image of tangible property emerges immediately, then how to imagine something else?

Let us analyze the main conditions for classifying funds as a group of intangible assets. So, representatives of this category must meet the following criteria:

• not have a physical form;
• used in the production and implementation processes of the enterprise or for managerial needs;
• be in circulation for 12 months or more;
• make a profit in the present or forecast time;
• comply with the requirements of legislation on paperwork;
• be able to transfer ownership of another natural or legal person.

The enterprise itself, in order to use intangible assets in its activities, is obliged to have ownership of them.

Classification of intangible assets by type

With the growth of scientific technology, the number of types of non-material forms of property is increasing. A dozen years ago, only exclusive copyrights were attributed here, but now the group has about 7 categories, which include:

1. The right to use natural resources.
2. Property rights.
3. Designations of a commercial nature (use of a trademark, brand, name).
4. Property in the industrial sector.
5. Copyrights.
6. Goodwill.
7. Other intangible assets (in particular, some costs).

It should be borne in mind that as an intangible asset it is recognized not the result of research and intellectual work, but the exclusive right to use it for commercial purposes.

Intellectual property

The results of intellectual activity are also intangible assets. What applies to them? Mostly patent or copyright assets. The first category includes rights arising in the scientific and design field. It:

• new inventions;
• industrial designs;
• technical models;
• names and trademarks.

The second category includes property created on the basis of objective representations of a certain author. These are works of art, software, databases, integrated circuit topologies and other assets.

The main difference between copyright and patent law lies in the way it is recognized, which resembles in this case the relation of the part to the whole. If a patent is issued for any invention and protects the work itself, then copyright is reserved only for the form of expression of the subjective view of different owners on the same idea.

Legal entity organization costs

It would seem that what is common between the costs and assets of the enterprise? In some cases, they may be reflected in intangible assets. For this, it is enough to observe several conditions:

• expenses must be made during the preparation of documents during the establishment of the enterprise until its registration with regulatory authorities;
• they are aimed at the remuneration of legal consultants, the repayment of registration fees and other costs of the legal opening of a legal entity;
• the amount of expenses should be included in the authorized capital of the organization.

Funds that meet these criteria can be included with certainty in intangible assets. All further expenses related to changes in accounting policies, stamps, seals and other documents are classified as general expenses.

Goodwill

The classification of intangible assets provides for the formation of property such as goodwill. It is considered only if there is a sale of the enterprise. Goodwill is understood to mean the difference between the market and book value of the company, taking into account the accumulated reputation (positive or negative). It turns out that goodwill has a price, which means it is sold and bought in the same way as any other property.

In the case of the formation of a positive business reputation, they speak of an additional amount of the premium that must be paid to the seller, since in the future the presence of goodwill will bring economic benefits to the new owner. A negative characteristic of a company in the market can lead to problems and difficulties that impede activity and profit. This is due to poor management, lack of an established sales system, marketing plan, regular customers and relationships, and for other reasons. This situation reduces the cost of the enterprise and requires a discount from the seller.

Depreciation rules

It has already been clarified what intangible assets are, what applies to them, and what are their specific features. Having realized that this property is equivalent to fixed assets, the question should be asked: is it depreciable? Since intangible assets do not have a physical form, how will they wear out? Depreciation generally takes the form of obsolescence. When determining the amount of deductions should be based on the following rules:

1. Assess the value and useful lives of intangible assets.
2. Depending on the specific situation and accounting policies, calculate the amount using one of three methods: linear, reduced balance, production.
3. Deductions are made from the 1st day of the month following the acceptance of the asset.
4. Non-profit organizations do not charge depreciation on intangible assets.

To collect the accumulated depreciation amounts, account 05 is used. This is a passive accounting account: credit is credited and debited is debited. When drawing up the balance, the credit balance is used in calculating the intangible assets index.

Description of depreciation methods

Different types of intangible assets require an individual approach to their valuation and depreciation. The linear method is universal for any property, regardless of its useful life, the amount of profit and other indicators. The method is often resorted to in cases where it is impossible to determine the exact operating period, and forecasting the receipt of possible economic benefits in the future is difficult. The method involves a uniform distribution over months of the total depreciation.

The method of reduced balance is used for intangible assets, the profit from which will be greatest in the first years of operation. Amounts are distributed unevenly, but remain constant for one period. For the calculation, an acceleration coefficient is used, which is regulated by the accounting policy. The indicator of residual or market value is multiplied by a fraction: the numerator is the coefficient, the denominator is the remaining life, determined in months.

The production method is the most flexible approach, depending on the financial result. The amounts are calculated in direct proportion to the volume of manufactured / sold products with the participation of intangible assets.

Initial value of intangible assets

To take property into account, you need to know exactly the value of its value. Like other non-current assets, intangible assets are reflected in accounting at the cost of the initial, identified at a certain date. The actual amount that had to be spent on the manufacture or acquisition of intangible assets includes:

• accounts payable directly related to the creation / purchase of property;
• net worth of the asset itself.

If it is difficult to evaluate independently manufactured intangible assets, a comparative analysis should be carried out with similar tools on the market.

In the future, the company has the right to reassess the property in accordance with the guidelines of the accounting policy. In the event of a decrease in the price of an intangible asset, the initial value changes. The difference between market and actual cost is attributed to the financial results of the enterprise.

Service life of intangible assets

After determining the initial cost, it is necessary to establish the useful life of intangible assets. The basis is the duration of the property rights to ownership of intangible assets. In other cases, they rely on the possible period of profit. The main intangible assets are divided into two categories:

• with an indefinite operational period;
• with a limited period of use.

If everything is clear with the second type, then for the first it is recommended to stop for 20 years. The determination of the operating period must necessarily be based on an analysis of possible profits, since the period is used to calculate depreciation.

Intangible Assets

To collect and group information on property that does not have a tangible form, two accounts are used: 04 and 05. The latter, as is already known, is created to accumulate depreciation deductions. Account 04 collects all data about the types, costs and processes that occur with intangible assets. This is an active inventory account, the debit balance of which is reflected in the financial statements. In addition, the company uses accounts 19.2 and 48 to characterize VAT and the sale of intangible assets.

A prerequisite for the organization of accounting of intangible assets is the maintenance of analytical accounts for each group or individual units of property. The following sub-accounts can be used as an example:

• 04.1 “Intellectual Property”.
• 04.2 “The right to use natural resources”.
• 04.3 “Deferred Costs”.
• 04.4 Goodwill.
• 04.5 "Commercial designations".
• 04.6 "Other objects of intangible assets".

The data of analytical accounting should be indicated in the annual statements (form No. 5) in the section characterizing the composition of the tangible property.

Correspondence with other accounts

Knowing what intangible assets are and what applies to them, it can be assumed with which accounting accounts account 04 will interact. Based on the characteristics of the active account, debit transactions characterize the acceptance of intangible assets for accounting through purchase, receipt, exchange. Interconnected accounts are 04 and 08, 50-52, 55, 75-76, 87-88. Write-off of intangible assets in special cases of sale, liquidation, exchange leads to the entry in the credit of account 04. In this case, interaction occurs with the debit of accounts 06, 48, 58, 87.

Accounting for the receipt of intangible assets

An act of acceptance of intangible assets is a document on the basis of which the receipt of property is recorded. The order of reflection of intangible assets differs depending on the way they are received:

1. Purchase - the acquisition of assets for a fee as agreed between the seller and the buyer. Expenses that should be included in the initial cost are collected in the debit of account 08. After intangible assets are ready for commissioning, the data is written off to account 04 by posting Dt 04 Kt 08.
2. Barter is a mutually beneficial and equivalent exchange between subjects of economic relations. The accountant writes the account assignment Dt 08 Kt 60/76 characterizing the receipt of intangible assets through the fulfillment of obligations to the other party to the exchange. If the process is accompanied by a surcharge or additional costs, they are reflected in debit 08 of the account. After calculating and starting to use, the posting is similar to the first point: Dt 04 Kt 08. The transfer of intangible assets is recorded in the credit of accounts of goods and materials or in the MPZ and in the debit of account 46, 47 or 48.
3. In the process of organizing an enterprise, intangible assets can be obtained from the founders. An example of the design of the wiring looks like this: Dt 04 Kt 75.1.
4. Upon the gratuitous transfer of intangible assets to the ownership of the company, the amounts are credited to account 87.3 at the current market value of the object. Account 04 is debited.
5. A prerequisite is the allocation of VAT, which occurs on accounts 68 “VAT” and 19.2. The process of acquiring intangible assets is accompanied by the posting of Dt 19.2 Kt 60/76 or other settlement accounts. After the assets are accepted for accounting, the amount of VAT is deducted in equal installments within six months: Dt 68 “VAT” Kt 19.2.
6. VAT from intangible assets acquired for business and other needs outside production is taken into account somewhat differently. The tax is covered by its own sources of financing: Dt 29, 88, 96 Kt 19.2.
7. Acquired intangible assets exempted from VAT for production needs include the amount of tax in the initial cost.

Disposal of intangible assets in accounting

Property of this type can be deducted from account 04 in cases of sale, gratuitous transfer, liquidation or redirection to the capital of other enterprises. These are the main reasons intangible assets are being retired. Regardless of the method of cancellation, the 48th account with an active-passive structure is used. In the debit write the initial cost of intangible assets, the amount of VAT on them, as well as the costs of disposal. The loan indicates the accumulated depreciation, as well as the amount of income from the sale or other benefits.

The turnover of account 48 allows you to highlight the financial result from the process: income in case of excess of loan turnover over the debit and vice versa. The data is written off to the corresponding account - 80, 84, 83, 98 (depending on the reason for the intangible asset withdrawal from the balance sheet).

Intangible assets are no less important for the success of an enterprise than other types of non-current assets. This type of ownership becomes a unique advantage in the market for the company over competitors.