Balance Sheet - Intangible Assets

Intangible assets are good-will, patents, brand, trademarks or leaseholds where it cannot be touch, value or measured.

Intangible assets are good-will, patents, brand, trademarks or leaseholds where it cannot be touch, value or measured. Difference companies have difference treatment on their intangible assets in balance sheet. The most common practices today is either not to mention intangible assets at all or carry intangible assets at the nominal value of $1.

An investor should pay attention to intangible assets when it appear on the balance sheet as some company intangible assets may contribution to a very high percentage of the total assets of the company.

Other assets

Goodwill is a difficult concept to understand, even for accountants. So much so, in fact, that generally accepted accounting principles in many countries are in the process of changing because of it.

When we speak of goodwill, we refer to that part of a business that is unrelated to its hard assets. Rather, goodwill refers to the fact that customers know the business name and keep coming back. In general, goodwill is assigned a value on the balance sheet only when it is purchased.

For example, if you run a machine repair shop, and it buys out one of its competitors for $30,000, some of that purchase price will relate to the equipment and other assets you purchased, but some might relate to the fact that the competitor had loyal customers that are expected to remain with you. This portion of the purchase price would be the goodwill.

Balance Sheet - Good-Will

When a company acquired a business, the differences between the actual purchase cost of the business and the book value or tangible assets appear in balance sheet as good will.

Some companies may write off it good will to nominal value $1 to be more conservative in its accounting policy when the companies achieved better financial position but this means that the good-will is in fact more valuable than it was at the beginning.

Patents contribute part of the good-will in some companies balance sheet but it is difficult to determine the fair value of patent especially investor have not clue on up to what extent a companies earning power is depend on what patent that it controls. So, the value of Patent carried on the balance sheet provide nothing about the true value of the patents.

Leasehold represent the long-term lease held at advantages rentals such as rental at lower rates than similar space could be leased. In declining real estate value environment, long-term leaseholds could become an liabilities instead of assets.

In more conservative stocks and securities analysis, intangible assets such as patents, good-will, brand, trademarks etc... are exclude or deducted from the actual calculation of the analysis. In other words, investor should pay attention on the earning power of the intangibles assets rather than the value carried in balance sheet.