What are intangible assets and what is their importance in the balance sheet

It is easy to see that a piece of furniture , a computer or a commercial room has value . After all, they are concrete, that is, they can be seen and touched. Due to their physical existence, these tangible assets naturally enter into the calculation of a company ‘s equity . However, many companies forget those intangible assets , which cannot be touched, like the brand itself.

Because they are not palpable, they are often not measured or do not receive due value in the balance sheet , which can be detrimental to the business .

In this post, then, you will know what are intangible assets and what is their importance, never to pass up these important assets of your company . Check out:

What are intangible assets ?

Intangible assets are the immaterial properties of a company , which do not physically exist, as is the case with trademarks , patents , licenses , copyrights , software , technology development , recipes , formulas , client portfolio , human resources and know-how .

For example, to use image -editing software , such as Photoshop, a design agency needs to purchase the use rights . Another example is a startup that internally develops innovative technology. All of this turns into the company’s intangible assets and adds value to its assets .

On the other hand, tangible goods , also called tangible or material goods , are those that physically exist, such as furniture , real estate , vehicles , money , stock , among others, which are also part of the patrimony .

Both tangible goods as the intangibles are property of the company , have value economical for her and can be converted into cash (traded, transferred, sold or rented).

How do intangible assets enter the balance sheet ?

Intangible assets are part of a company ‘s equity , which covers everything it has ( assets and rights ) and what it owes (obligations).

For this reason, they must be present in the balance sheet , which shows the accounting, financial and economic situation of a business in a certain period of time, usually over a period of one year.

The intangible assets are classified as assets since the enactment of  Law No. 11,638 / 2007 , which made changes in the legislation on financial statements. They became part of the group of non-current assets , which should appear on the balance sheet . But they will only be recognized as such when:

 Measurement of the asset’s value is possible and reliable;

 The benefits of the asset to the company are verifiable;

 The asset is separable from the company’s equity , that is, it can be traded, transferred, sold or rented.

The problem is, however, in the measurement of some intangible assets . This is the case with brands : how to know their value ? How to measure your reputation? This is one of the challenges for accounting, since brands are increasingly relevant in the perception of companies’ value .

What is the importance of including intangible assets in the balance sheet ?

No company can survive without good financial health. But how do you know if your business is healthy if you don’t even have financial control ? That is why every entrepreneur needs to know what his company has and what it should.

The result of this is the balance sheet , which presents an X-ray of the financial situation of the business . In addition to being part of the control, this document also serves for situations like these:

 Purchase and sale of the company ;

 Creation of franchises;

 Entry or exit of partners;

 Dissolution of a company.

Only, for all these situations, you need to know the real assets of your company. And that goes far beyond counting how many computers and desks your office has. So, intangible assets make this calculation closer to reality, as they are also valuable.

In 1975, tangible assets represented 83% of a company ‘s equity . Over the years, however, this percentage has been decreasing. Thus , in 2015, intangible assets reached  87% of a company ‘s equity .

What does that mean? That companies are looking for their differential in intangible assets , in addition to accounting for and protecting them more and more to increase the value of their assets . And one of the most relevant elements is the brand .

In addition to being legally protected, the brand must ensure its reputation with its audiences. This becomes a competitive and sustainable advantage for companies , in the face of such a saturated and competitive market. Thus, they increase their market value and achieve better results.

Finally, the accounting and financial statement must have intangible assets. Although it is more difficult to perceive them and define their value , they can represent a large part of a company ‘s equity .

For this reason, it is important to have a qualified accounting professional to survey and evaluate the assets , as well as account for them in the balance sheet .

 

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