How Intangible Assets Appear on a Balance Sheet

How Are Intangible Assets Reflected on a Balance Sheet?

Intangible assets only appear on a company’s balance sheet if they are acquired through a purchase and therefore have an identifiable value and an identifiable lifespan. On the balance sheet, intangible assets appear as long-term assets and are valued according to their price and amortization schedules.

Intangible assets add to a company’s possible future worth, and they can be much more valuable than tangible assets. They include patents, goodwill, trademarks, franchises, licensing, copyrights, and intellectual property. Tangible assets have physical forms, and are items such as buildings or office furniture.

Learn more about how intangible assets are shown on a balance sheet. Discover more about how they differ from tangible assets and are valued over their lifespan.

What Are Intangible Assets and Their Importance in Finance?

Intangible assets are nonphysical resources that have financial value and are used over the long term. They add to a company’s possible future worth and can be much more valuable than tangible assets. Most intangible assets are long-term assets, which means they have a useful life of more than a year. 

They are often intellectual assets, such as patents, trademarks, copyrights, and goodwill. They can also be internet domain names, service contracts, computer software, blueprints, manuscripts, joint ventures, medical records, and permits. Brand equity is an intangible asset because the value of a brand is determined by the perception of the company’s customers (and it is not a physical asset).

Proper valuation and accounting of intangible assets is often problematic because of the difficulty in assigning value to them. This difficulty partially arises from the uncertainty of their future benefits—and the difficulty in reliably measuring their costs. 

Comparing Tangible and Intangible Assets on the Balance Sheet

Tangible assets are always listed on a company’s balance sheet; they are considered a part of the company’s total assets and are recorded on the balance sheet as either current or noncurrent (also called “fixed”) assets.

• Current assets are short-term assets; they can be converted to cash, sold, or used within one year. They provide liquidity and help a company run its day-to-day operations. Inventory is an example of a current asset.
• Noncurrent assets are tangible assets that are not expected to be consumed or converted to cash within one year. Property, plant, and equipment are examples of noncurrent assets.

On the other hand, intangible assets only appear on the balance sheet when they have an identifiable value and lifespan; they appear on a company’s balance sheet as long-term assets and are valued according to their price and amortization schedules. Internally developed intangible assets do not appear on a company’s balance sheet.

Example: How Intangible Assets Appear in a Real Balance Sheet

Below is a portion of Apple’s balance sheet from its 2017 Form 10-K statement.

• Intangible assets comprise these categories on the balance sheet: “Goodwill” and “Acquired Intangible Assets, net.”
• “Goodwill” was approximately $5.7 billion for Apple in 2017.
• “Acquired Intangibles, net” were approximately $2.2 billion for Apple in 2017 (highlighted in blue).
• Intangible assets are not listed under current assets (highlighted in pink) because they are long-term assets. They are used in the business for more than one accounting period—in other words, they have a long-term, useful economic life.

Even though an intangible asset, such as Apple’s logo, carries huge name recognition value, it does not appear on the company’s balance sheet because it was internally developed. Because it was developed internally, it doesn’t have a price that can be used to assign a fair market value. However, if the logo had been part of the acquisition of another firm, then it would appear on the balance sheet.

Suppose that a company does acquire an intangible asset, such as the right to use another company’s customer list for 10 years (a finite period of time; i.e., an identifiable lifespan). If that company spends $10,000 to purchase the customer list—an intangible asset—for 10 years (a finite period of time), then $1,000 of the purchase price would be expensed each year, and the value of the customer list license would appear on the balance sheet in year three as $7,000.

Intangible assets with infinite life (vs. finite life), including goodwill, are not amortized systematically. Instead, they are included on the balance sheet, as Apple has done, and periodically reviewed for impairment.

The Bottom Line

Intangible assets are assets that lack physical form and are nonfinancial in nature, such as patents, trademarks, and copyrights. They appear on a balance sheet if they’re acquired through a purchase, and thus, have an identifiable value and lifespan.

Intangible assets are listed under long-term assets at their purchase price minus accumulated amortization. In other words, they’re recorded at their cost less the amount expensed over their useful life. Note that intangible assets that are internally developed do not appear on the balance sheet.