Issues Relating to Intangible Assets
Intangible assets are those assets of the company which do not have any physical presence. Some of the examples of intangible assets include, patents, trademarks, goodwill etc. However, since such assets do not have any physical form or presence, accounting for such assets has always been problematic for the accountants. Below discussed are some of the issues relating to accounting for intangible assets:
Just as accounting of other tangible assets, accountants are required to apply fair value accounting principles even to tangible assets. Although not all of the intangible assets are under this rule, but right to use and many similar kind of assets fall under this category. As per the fair market rule, accountant should revalue intangible assets according to the current market value. However, whenever the prevailing market price goes less than the historical cost, the company must write down the asset to this value. In this way, the write down goes against the bottom line profits of the company while no gain is recorded to boost net incomes.
Zero Liquidation Value:
A company with copious list of intangible assets will soon find that such assets do not have any liquidation value and are just for the reporting purpose on the financial statements of the company. In other words, there are accounting requirements under which a company must retain the assets for the whole lifetime. However, if the company is under hard operating times, these assets are of no use as they have no financial value.
Another issue with Intangible assets is that while it do not have any financial value, along with that, the company also have to bear amortization expenses relating to intangible assets which are posted to income statement. Including these expenses reduces the net income of the company. Thus, while these assets do not provide any benefits to the company, they surely are source of income reduction and accounting hassle.
Thomasan, K. (n.d.). Problems of Intangible Assets in Accounting Principles. Retrieved March 26, 2014, from ehow: http://www.ehow.com/info_8523748_problems-intangible-assets-accounting-principles.html