What are intangible assets?

Published Thursday 23 July 2026

Table of contents

• What are intangible assets?
• Types of intangible assets
• Intangible assets vs tangible assets
• Definite vs indefinite intangible assets
• How intangible assets are valued
• Amortisation of intangible assets
• How intangible assets appear on the balance sheet
• Why intangible assets matter for small businesses
• Track your business assets with Xero
• FAQs on intangible assets

Key takeaways

• Intangible assets are non-physical resources that hold value for your business, such as patents, trademarks, goodwill and software. They're recognised under Australian Accounting Standards Board (AASB) 138 when they're identifiable and you can measure their cost reliably.
• The distinction between definite and indefinite useful life determines how you account for intangible assets. Definite-life assets are amortised over their useful life, while indefinite-life assets like goodwill are tested for impairment each year instead.
• Valuing intangible assets matters most when you're buying or selling a business, seeking finance or resolving a dispute. The 3 main approaches are market-based, income-based and cost-based valuation.
• Tracking your intangible assets alongside your tangible ones gives you a clearer picture of what your business is actually worth. Good record keeping also helps at tax time and when working with your accountant or bookkeeper.

What are intangible assets?

Intangible assets are business resources you can't physically touch, but they still hold real financial value. Think of the trademark on your business name, a patent on a product you've developed, or the goodwill your business has built over the years.

In Australia, intangible assets are governed by AASB 138 (the local equivalent of International Accounting Standard (IAS) 38). Under this standard, an intangible asset is a non-monetary asset without physical substance. To be recognised on your balance sheet, it needs to be identifiable, controlled by your business and expected to deliver future economic benefits.

There's an important distinction between identifiable and unidentifiable intangible assets. Identifiable intangible assets can be separated from your business and sold, transferred or licenced on their own; a patent or a customer list are good examples. Unidentifiable intangible assets, like goodwill, can't be separated; they only exist as part of the business as a whole.

Types of intangible assets

Intangible assets come in many forms. Some you'll recognise straight away, while others might already exist in your business without you realising their value.

Common types of intangible assets include:

• Goodwill: the premium paid above the fair value of net assets when a business is purchased. It reflects things like customer loyalty, reputation and staff expertise.
• Patents: legal protection for an invention, giving you the exclusive right to make, use or sell it for a set period.
• Copyrights: protection for original creative works such as written content, music, software code or designs.
• Trademarks: registered names, logos or slogans that distinguish your brand from competitors.
• Brand names: the recognised identity of your business or products in the market, which can carry significant value even if not formally registered.
• Software and technology: custom-built or purchased software your business relies on, including apps, databases and digital platforms.
• Licences and franchises: rights granted to operate under specific terms, such as a liquor licence or a franchise agreement.

Intangible assets vs tangible assets

The core difference is simple: tangible assets have a physical form, while intangible assets don't. Both types can be valuable, but they're accounted for differently.

Tangible assets include things like vehicles, office equipment, machinery and property. You can see them, touch them and usually insure them against physical damage. Intangible assets, on the other hand, include trademarks, patents, software and goodwill.

The distinction matters for your financial reporting. Tangible assets are depreciated over their useful life, while intangible assets with a definite useful life are amortised. You'll also find them in different places on your balance sheet. Understanding which assets fall into each category helps you track the full value of your business and meet your reporting obligations.

Definite vs indefinite intangible assets

Not all intangible assets last forever. The useful life of an intangible asset determines how it's treated in your accounts.

Definite intangible assets have a known or estimable useful life. A patent, for example, typically lasts 20 years in Australia. A software licence might run for 3 years. These assets are amortised, meaning their cost is spread across each year of their useful life.

Indefinite intangible assets have no foreseeable end to their useful life. Goodwill is the most common example. A well-known brand name can also fall into this category if there's no expiry on its value. Instead of amortisation, indefinite intangible assets are tested for impairment at least once a year to check whether their carrying value still holds up.

How intangible assets are valued

Putting a dollar figure on something you can't physically hold isn't always straightforward. There are 3 widely accepted approaches to valuing intangible assets, and the right one depends on the asset and the context.

The main valuation approaches are:

• Market approach: compares your intangible asset to similar assets that have recently been sold or licenced. This works well when there's an active market, but comparable transactions can be hard to find for unique assets.
• Income approach: estimates the future income the asset is expected to generate, then discounts it back to a present value. This is commonly used for patents, customer relationships and brand names.
• Cost approach: calculates what it would cost to recreate or replace the asset today. This is often used for internally developed software or databases where market and income data isn't available.

For most small businesses, valuation becomes relevant when you're selling the business, bringing on investors or going through a dispute. Your accountant or a specialist valuer can help you choose the right method.

Amortisation of intangible assets

Amortisation is the process of gradually writing off the cost of an intangible asset over its useful life. It works much like depreciation does for tangible assets, but applies specifically to non-physical resources.

If your intangible asset has a definite useful life, you'll amortise it. For example, if you purchase a 5-year software licence for $10,000, you'd typically recognise $2,000 as an expense each year. The most common method is straight-line amortisation, which spreads the cost evenly across each period.

Intangible assets with an indefinite useful life aren't amortised at all. Instead, they're reviewed annually for impairment. If the asset's recoverable amount drops below its carrying value on your books, you'll need to record an impairment loss. Goodwill is the most common asset subject to this annual test.

How intangible assets appear on the balance sheet

Intangible assets sit under non-current assets on your balance sheet, separate from tangible items like property and equipment. How they get there depends on whether you purchased them or created them internally.

Purchased intangible assets are recorded at their acquisition cost, which includes the purchase price plus any directly attributable costs like legal fees. If you acquire intangible assets as part of buying another business, they're recognised at their fair value on the date of acquisition.

Internally generated intangible assets are trickier. Under AASB 138, you can only capitalise costs incurred during the development phase, and only if you can demonstrate the asset will generate future economic benefits, that you intend to complete it, and that you can measure the costs reliably. Research costs are always expensed as incurred. Internally generated goodwill and brand names can't be recognised as assets on your balance sheet at all.

Why intangible assets matter for small businesses

You might think intangible assets are only relevant to large corporations, but they play a real role in small businesses too. Understanding what you own can make a meaningful difference when it counts.

Here's why intangible assets deserve your attention:

• Business valuation: when you sell your business, intangible assets like goodwill, customer lists and brand recognition often make up a significant portion of the sale price.
• Attracting finance: lenders and investors want to understand the full picture of what your business is worth, including the intangible assets that drive future revenue.
• Protecting your intellectual property (IP): registering trademarks, patents and copyrights protects your competitive advantage and can generate income through licencing.
• Accurate financial reporting: tracking intangible assets gives you a more complete view of your financial position and helps your accountant prepare reliable reports.
• Tax considerations: amortisation of certain intangible assets may be deductible, reducing your taxable income. Check with your accountant or the Australian Taxation Office (ATO) for current rules.

Track your business assets with Xero

Keeping on top of your business assets, both tangible and intangible, helps you understand what your business is truly worth. With clear records in place, you're better prepared for tax time, conversations with your accountant and any future plans to grow or sell your business. Xero's accounting software makes it straightforward to manage your balance sheet, track asset values and stay organised, so you can focus on running your business. Get one month free.

FAQs on intangible assets

Here are some frequently asked questions about intangible assets.

What are examples of intangible assets?

Common examples include goodwill, patents, trademarks, copyrights, brand names, software, customer lists, licences and franchise agreements. Domain names and proprietary processes can also qualify as intangible assets if they meet the recognition criteria under AASB 138.

Are stocks intangible assets?

No, stocks (shares or equities) are classified as financial assets, not intangible assets. Financial assets have their own accounting standards and are reported separately on the balance sheet.

What is the difference between amortisation and depreciation?

Both spread an asset's cost over its useful life, but amortisation applies to intangible assets while depreciation applies to tangible ones. The underlying principle is the same; the distinction is based on whether the asset has a physical form.

How do you value intangible assets?

The 3 main methods are the market approach (comparing to similar transactions), the income approach (estimating future earnings) and the cost approach (calculating replacement cost). A qualified valuer or your accountant can help you choose the most appropriate method for your situation.

What is goodwill as an intangible asset?

Goodwill represents the value paid above the fair value of a business's identifiable net assets during an acquisition. It captures factors like customer loyalty, brand reputation and employee expertise that aren't separately identifiable on the balance sheet.