Intangible assets
Learn what intangible assets are, their main types and examples, and how they're recognised and amortised.
Published Wednesday 12 August 2026
Table of contents
Key takeaways
- Intangible assets are non-physical, identifiable resources that provide economic value to a business, including patents, trademarks, copyrights, licences and goodwill.
- Unlike tangible assets, intangible assets have no physical form but can represent a significant portion of a company's total value.
- Under IAS 38, an intangible asset must be identifiable, controlled by the business and expected to generate future economic benefits before it can be recognised on the balance sheet.
- Intangible assets with a finite useful life are amortised over that period, while those with an indefinite life (such as goodwill) are tested for impairment instead.
What are intangible assets?
An intangible asset is an identifiable, non-monetary asset without physical substance. Common examples include intellectual property (patents, copyrights, trademarks), licences, software and goodwill.
Unlike equipment or inventory, you cannot touch or see an intangible asset. Yet these assets often drive long-term competitiveness because they protect innovations, build brand recognition and create barriers to entry for competitors. According to Ocean Tomo's Intangible Asset Market Value Study, intangible assets accounted for roughly 92% of the market value of S&P 500 companies in 2026, a reversal from 1975 when tangible assets made up 83% of that value.
For small businesses, intangible assets can be just as valuable as physical ones. A strong brand, a patented product design or a proprietary customer list can set your business apart and support growth.
Intangible assets vs tangible assets
The core difference lies in physical form. Tangible assets are physical items you can see and touch, while intangible assets lack physical substance. Both types appear on the balance sheet as resources that provide future economic benefit, but they are accounted for differently.
- Tangible assets include property, plant, equipment, vehicles and inventory.
- Intangible assets include patents, trademarks, copyrights, licences, software and goodwill.
- Tangible assets are depreciated over their useful life; intangible assets with a finite life are amortised.
- Tangible assets can often be sold or used as collateral more easily than intangible assets.
- Valuing intangible assets tends to be more subjective because there is no physical item to inspect or compare.
Types of intangible assets
Intangible assets fall into different categories based on whether they can be separated from the business and how long they provide value.
Identifiable intangible assets
An identifiable intangible asset can be separated from the business and sold, transferred or licensed. Examples include:
- Copyrights
- Trademarks and trade names
- Patents
- Licences
- Intellectual property (such as software code or proprietary processes)
Unidentifiable intangible assets
Goodwill is the main example of an unidentifiable intangible asset. It arises when a business is purchased for more than the fair value of its net identifiable assets. Goodwill cannot be separated and sold on its own because it represents factors like reputation, customer loyalty and workforce expertise that are tied to the business as a whole.
Finite-life and indefinite-life intangible assets
Intangible assets are also classified by how long they provide benefits. Finite-life intangible assets have a limited period of use, such as a patent that expires after 20 years or a licence that runs for a set term. These assets are amortised over their useful life, spreading the cost across the periods they benefit.
Indefinite-life intangible assets, like goodwill and certain trademarks, have no foreseeable end to their useful life. Instead of being amortised, these are tested annually for impairment. If their value drops, the business records an impairment loss.
Examples of intangible assets
Intangible assets take many forms across different industries. Here are some of the most common:
- Patents: exclusive rights to an invention, such as a pharmaceutical formula or a mechanical process.
- Trademarks: brand names, logos and slogans that identify products or services (think of the Nike swoosh or the McDonald's golden arches).
- Copyrights: protection over creative works like books, music, films and software.
- Licences: permissions to use certain rights, operate in regulated industries or access proprietary technology.
- Software: custom-developed applications or purchased software used in operations.
- Customer relationships: the value of established customer contracts and loyalty.
- Brand equity: the premium customers pay for a recognised brand over a generic alternative.
- Goodwill: the excess paid in an acquisition, reflecting reputation, workforce skills and synergies.
How intangible assets are recognised
Not every intangible resource can be recorded on the balance sheet. IAS 38, the international accounting standard for intangible assets under IFRS, sets out three criteria.
First, the asset must be identifiable. It is identifiable if it can be separated from the business (sold, licensed or exchanged) or arises from contractual or legal rights. Second, the business must control the asset, meaning it can obtain the future economic benefits and restrict others from accessing them. Third, there must be probable future economic benefits flowing to the business.
Acquired intangible assets, purchased either individually or as part of a business combination, are generally recognised on the balance sheet at cost. Internally generated intangibles are treated differently. Research costs are expensed as incurred because the outcome is uncertain. Development costs may be capitalised once specific criteria are met, including technical feasibility, intention to complete, ability to use or sell, and reliable measurement of expenditure.
How intangible assets are valued
Putting a value on something you cannot see or touch is inherently challenging. Three main approaches are used to value a company's intangible assets.
- Market approach: compares the asset to similar intangibles that have been bought or sold in the market.
- Income approach: estimates value based on the future cash flows the asset is expected to generate, discounted to present value.
- Cost approach: calculates what it would cost to recreate or replace the asset today.
Goodwill has its own calculation. When one business acquires another, goodwill equals the purchase price minus the fair value of net identifiable assets acquired. This residual amount captures factors like brand strength, customer loyalty and synergies that are difficult to value separately.
Valuing intangible assets involves estimates and judgement. Market comparisons may be scarce, future cash flow projections are uncertain and replacement costs can be hard to pin down. Professional valuers often combine methods to arrive at a supportable figure.
Intangible assets on the balance sheet and amortisation
Intangible assets appear on the balance sheet as non-current (long-term) assets, grouped under a heading such as "intangible assets" or within fixed assets. They sit alongside property, plant and equipment but are accounted for using different methods.
Finite-life intangible assets are amortised. Amortisation spreads the cost of the asset over its useful life, reducing its carrying value each period. This is similar to depreciation for tangible assets but applies specifically to intangibles.
For example, suppose your business acquires a software licence for R100,000 with a useful life of 10 years. Each year, you would record amortisation expense of R10,000 (R100,000 ÷ 10 years). After five years, the carrying value on the balance sheet would be R50,000.
Indefinite-life intangible assets, such as goodwill, are not amortised. Instead, they are reviewed at least annually for impairment. If the recoverable amount falls below the carrying value, an impairment loss is recorded.
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FAQs on intangible assets
Below are answers to common questions about intangible assets and how they are handled in accounting.
What is the difference between tangible and intangible assets?
Tangible assets have physical form (buildings, machinery, inventory), while intangible assets lack physical substance (patents, trademarks, goodwill). Both provide future economic benefits but are measured and amortised or depreciated differently.
Is intangible property the same as an intangible asset?
The terms are often used interchangeably. Intangible property typically refers to legal rights over non-physical items, while intangible asset is the accounting term for a non-physical resource recognised on the balance sheet.
Are intangible assets depreciated or amortised?
Intangible assets are amortised, not depreciated. Depreciation applies to tangible fixed assets; amortisation serves the same purpose for intangibles with a finite useful life.
How are internally generated intangibles treated?
Research costs are expensed as incurred. Development costs can be capitalised once technical feasibility and other IAS 38 criteria are met. Internally generated goodwill, brands and customer lists are not recognised as assets.
What happens to intangible assets when a business is acquired?
The acquiring company identifies and values the target's intangible assets separately. Any excess of the purchase price over the fair value of net identifiable assets is recorded as goodwill.
How do intangible assets appear on the balance sheet?
They are listed under non-current assets, often in a dedicated intangible assets line or grouped with fixed assets. The balance sheet shows their carrying value after accumulated amortisation and any impairment.
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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.