Intangible Assets — full notes
Paper No. 1: Financial Accounting · Accounting for Assets and Liabilities - Intangible Assets
Intangible Assets
1. What is an intangible asset?
An identifiable, non-monetary asset without physical substance. Identifiable matters - it must be separable or arise from a legal/contractual right. This is what distinguishes most intangibles from goodwill, which is not separately identifiable.
| Type | Example |
|---|---|
| Patent | Legal right to exclude others from an invention |
| Trademark | A registered brand name or logo |
| Copyright | Legal right over creative or written work |
| Licence | Permission to operate in a regulated activity, or use another's technology |
| Software | Purchased or internally developed, meeting recognition criteria |
| Goodwill | The excess paid for a business over its identifiable net assets - treated differently, see section 4 |
2. How this differs from PPE and financial assets
PPE has physical substance; intangibles do not. Financial assets are monetary claims - cash, receivables, investments; intangibles are not claims to cash, they are rights or advantages.
3. Amortisation
The same idea as depreciation, applied to intangible assets with a finite useful life:
Annual amortisation = Cost / Useful life
Example: a patent is purchased for KES 600,000, with a 10-year remaining legal life. 600,000 / 10 = KES 60,000 per year. After 3 years, NBV = 600,000 - (60,000 x 3) = KES 420,000.
Intangibles rarely have a residual value the way physical assets sometimes do.
4. Goodwill - the exception
Goodwill is not amortised. It does not have a determinable finite life, so it is instead reviewed periodically for impairment - a more advanced technique beyond this syllabus level. At this level: goodwill sits on the Statement of Financial Position at cost unless found to be impaired, not steadily reduced year by year the way a patent is.