Identifiable Intangible Assets

Definition

Identifiable intangible assets are assets that are derived from a specific right or ability. Most of these assets are created by registration with a government authority or by contract.

Types of Identifiable Intangible Assets

Some major types of identifiable intangible assets are listed below.

Patent: Unique right to manufacture a product or to use a process; protected by a legal authority for 17 years.

Patent license: The right to manufacture a product or to use a process that is patented by another party.

Copyright: Unique right to benefit from a creative production, such as a song, film, painting, photograph, or accounting textbook.

Registered copyrights are protected under both domestic and international law. Also, U.S. copyrights are valid for the life of the creator in addition to 50 years.

Trademark (also trade name and service mark): Unique right to display a word or an emblem that identifies a firm, product, or service.

Trademarks are protected by law when registered as long as the word does not become accepted in common language as descriptive of all similar items.

Leasehold: Unique right to use another party’s tangible asset; created under long-term lease contracts.

Franchise: Unique right to use another party’s intangible asset, such as a trademark; contract may include other benefits, such as participation in training, or national advertising campaigns.

The term “franchise” is also used to describe rights granted by government authorities to private enterprises to perform public services, such as restaurants in public buildings or mass transit systems.

Organization costs: Unique right to operate as a business entity; obtained through registration with authorities, payment of permit and legal fees, and issuance of securities.

Other identifiable intangibles may exist. Those listed above appear as assets in balance sheets when appropriate conditions are met.

Unidentifiable Intangible Assets

Definition

The term “unidentifiable” is used to denote a general class of intangible assets commonly called goodwill. This can be defined as the unique ability of the firm to use its identifiable assets to earn a higher than normal rate of return.

Specific sources of goodwill include competent management, well-motivated employees, an efficient distribution system, a positive reputation, and customer satisfaction.

Purchased Intangibles

Virtually all types of intangible assets can be acquired by purchasing the underlying rights from their owners. This category includes both identifiable and unidentifiable intangibles.

The availability of a purchase transaction makes the reliable measurement of the acquisition cost feasible.

Internally Generated Intangibles

As an alternative to purchasing, it is possible to develop specific types of intangibles internally for a company’s own use.

However, not all kinds of intangibles can be internally generated. For example, transactions with outside parties are required in order to obtain patent licenses, leaseholds, and franchises.

The category of internally generated intangibles includes trades secrets and other knowledge that is not protected by legal authorities.

The absence of a purchase transaction (or series of transactions) makes measuring the acquisition cost more difficult and unreliable.

Frequently Asked Questions

What is the difference between identifiable and unidentifiable intangible assets?

Identifiable intangibles have a clear owner, giving rise to contractual rights that can be transferred. Unidentifiable intangible assets include goodwill which has no specific legal owner but arises from businesses operations.

How are identifiable intangibles recorded on Financial Statements?

Identifiable intangibles are recorded at their cost, measured using any of the following accounting models: 1) specific identification; 2) bundle of rights; 3) cost-benefit.

Does transaction size affect identifiable intangible assets measurements?

No, transaction size does not affect the measurement of an identifiable intangible asset. However, it does affect the assignment of costs to periods.

What is a bundle of rights?

A bundle of rights is where a right, such as a patent or a trademark, can be split into separate components that may be assigned to different parties for separate consideration.

What is goodwill and how do you measure it?

Goodwill is an intangible asset that arises from a firm's ability to use its other identifiable assets to generate future economic benefits.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.