Intangible assets
Learn what intangible assets are, with examples and how they are valued, recorded and amortised.
Published Monday 31 August 2026
Table of contents
Key takeaways
- Intangible assets are non-physical resources such as patents, trademarks, software and goodwill that still hold real value for your business.
- They are recorded as non-current assets on the balance sheet and amortised over their useful life rather than depreciated.
- Assets with a finite life are amortised, while indefinite-life assets like goodwill and brand are tested for impairment instead.
- For many businesses, intangible assets are worth more than physical ones, so tracking them accurately matters.
What are intangible assets?
Intangible assets are resources your business owns that have no physical substance but still hold value, such as patents, trademarks and goodwill. They are recorded as non-current assets and, where they have a finite life, amortised over time rather than depreciated.
Under the international accounting standard that governs them, IAS 38, accountants split them into two groups. Identifiable intangible assets can be separated from the business and sold on their own, like a patent or a licence. Unidentifiable intangible assets, such as goodwill, only have value as part of the business as a whole. The same standard sets out how these assets are recognised, valued, capitalised and amortised, as covered in the sections below.
Because you cannot touch or store them, intangible assets are easy to overlook. Yet they often protect your revenue, your reputation and your competitive position, which is why they belong on your books alongside your equipment and stock.
Examples of intangible assets
Intangible assets show up in almost every business, from a café with a trusted name to a software firm with proprietary code. Here are common examples and what each one covers.
- Patents: legal rights that protect an invention or process for a set period
- Trademarks and trade names: signs, logos and names that identify your products and set them apart
- Copyrights: rights over original work such as writing, music, designs or code
- Licences: permissions to use another party's property, technology or intellectual rights
- Franchises: rights to operate under an established brand and business model
- Software: programs your business buys or builds to run its operations
- Customer lists: records of client relationships that carry future earning potential
- Goodwill: the premium paid when buying a business above the value of its identifiable assets
- Brand: the reputation and recognition attached to your business name and products
Types of intangible assets: brand, goodwill and intellectual property
Most intangible assets fall into a few broad groups, which makes them easier to account for and manage. The main categories are brand, goodwill and intellectual property.
- Brand: the value tied to your name, reputation and customer loyalty, which usually has an indefinite life
- Goodwill: the extra amount paid to acquire a business, reflecting its reputation, staff and customer base
- Intellectual property: legally protected creations such as patents, copyrights, trademarks and registered designs
Intellectual property is often the most concrete group because it can be registered, licensed and sold. Goodwill and brand are harder to pin down, since their value depends on how the wider business performs.
Definite vs indefinite intangible assets
Intangible assets are also classified by how long they are expected to bring value to your business. This split between definite and indefinite life decides how you treat each one in your accounts.
- Definite intangible assets have a known, limited useful life, such as a patent that expires or a fixed-term licence, and are amortised over that period
- Indefinite intangible assets have no foreseeable end to their usefulness, such as an established brand or goodwill, and are tested for impairment instead of being amortised
A software licence that runs for five years is a clear definite asset. A well-known brand name has no set expiry, so it sits in the indefinite group and is reviewed regularly for any drop in value.
Intangible assets vs tangible assets
The simplest difference is physical form: you can touch a tangible asset but not an intangible one. The distinctions below show how the two types behave on your books.
- Physical form: tangible assets like vehicles and equipment exist physically, while intangible assets such as patents and brand do not
- Expensing method: tangible assets are depreciated over their useful life, while intangible assets are amortised or tested for impairment
- Valuation: tangible assets are usually easier to value from a market price, while intangible assets often need a specialist estimate
- Resale: many tangible assets can be sold second-hand, while some intangible assets have value only inside the business
Financial assets such as shares and bonds sit in a separate category again. Under IAS 38 they are neither operational tangible assets nor intangible assets, so they are reported on their own. When you review a tangible asset, keep an eye on its accumulated depreciation, since that running total reduces its carrying value over time.
How intangible assets are recorded on a balance sheet
Intangible assets appear as non-current assets on your balance sheet, usually below your tangible fixed assets. An asset can only be recognised when it meets two tests.
- Future benefit: it is probable the asset will bring economic benefit to your business
- Reliable cost: the cost of the asset can be measured reliably
How the asset arose also matters. Purchased intangible assets, like a trademark bought from another company, are recorded at their purchase cost. Internally generated intangible assets are harder, and internally generated brands, mastheads and customer lists generally cannot be capitalised because their cost is difficult to separate from the running of the business.
Amortising intangible assets
Amortisation spreads the cost of a finite-life intangible asset across the years it is expected to be useful. Most businesses use the straight-line method, charging an equal amount each year over the asset's useful life.
Assets with an indefinite life are not amortised. Instead they are tested for impairment, so you write down their value only when it falls below the amount on your books. A patent with 10 years left would be amortised evenly, while goodwill would be reviewed for impairment each year.
The idea mirrors how you handle physical assets, where depreciation spreads the cost of items like machinery. The difference is mostly in the name: amortisation applies to intangible assets and depreciation applies to tangible ones.
How to value intangible assets
Valuing intangible assets is one of the trickier jobs in accounting, because there is often no ready market price to point to. Three approaches are commonly used, sometimes together.
- Market approach: base the value on what similar assets have sold for
- Income approach: estimate the future cash flows the asset is likely to generate and discount them to today's value
- Cost approach: work out what it would cost to recreate or replace the asset
Each method can give a different figure, so many owners use a professional valuer for anything material. If you are weighing up a sale or purchase, a structured method for valuing a business can put these intangible figures in context.
Why intangible assets matter for your business
Intangible assets often make up the bulk of what a business is worth. According to Ocean Tomo's Intangible Asset Market Value Study, intangible assets accounted for about 90% of the market value of S&P 500 companies in recent years, up from 17% in 1975. Those figures cover large US listed companies, so the mix for a Philippine small business will differ, but the direction is clear: brand, customer relationships and intellectual property are frequently worth more than physical assets.
For your own business, that means keeping clear records of the intangibles you own and protecting them properly. Well-documented patents, trademarks and customer relationships can strengthen your position when you seek finance, take on partners or plan a sale.
Track your business assets with Xero
Keeping accurate records of both your intangible and tangible assets helps you understand what your business is really worth. With Xero accounting software you can record assets, run a fixed asset register and produce clear reports whenever you need them.
When you sign up you can get one month free and see how Xero keeps your asset records accurate and up to date. That gives you a reliable picture of your finances, so you can spend less time on admin and more time running your business.
FAQs on intangible assets
These common questions cover the points small business owners ask most about intangible assets. Each answer adds a little more detail to the main sections above.
Is goodwill an intangible asset?
Yes, goodwill is an intangible asset. It represents the amount paid to buy a business above the value of its identifiable assets, and it is tested for impairment rather than amortised.
Can internally generated intangible assets be capitalised?
Some can, but internally generated brands, mastheads and customer lists generally cannot be capitalised. This is because their cost is difficult to separate from the day-to-day cost of running the business.
Are shares and other financial assets intangible assets?
No, shares, bonds and similar financial assets are classified separately under IAS 38. They are neither tangible operational assets nor intangible assets, and they appear in their own category on the balance sheet.
What is the difference between amortisation and depreciation?
Amortisation spreads the cost of an intangible asset over its useful life, while depreciation does the same for a tangible asset. The methods are similar, but the terms apply to different asset types.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.