Intangible assets: what does it include, classification and accounting

Intangible assets are property that does not have physical form, but represents material value to the enterprise. In addition, they, like fixed assets, are aimed at making a profit in the course of financial activities. The accounting for this group of funds is somewhat different from collecting information about the rest of the property. With the peculiarities of its organization and the structure of the assets themselves, we will get acquainted in this article.

Specific features

What is intangible assets? What does it concern? A novice accountant probably tormented by similar questions. If the image of material property looms at once, how can you imagine something different?

We will analyze the main conditions for allocating funds to a group of intangible assets. So, representatives of this category must meet the following criteria:

• Not have a physical form;
• Used in the production and implementation processes of the enterprise or for management needs;
• Be in circulation for 12 months or more;
• To make profit in the present or foreseen time;
• Comply with the requirements of the legislation on documentary design;
• Be able to transfer ownership to another person or entity.

The enterprise itself for the use of intangible assets in its activities is required to have ownership of them.

Classification of intangible assets by types

With the growth of scientific technologies, the number of types of non-material forms of property increases. Just a decade ago, only exclusive copyright was included here, but now the group has about 7 categories, including:

1. The right to use natural resources.
2. Property rights.
3. Designations of a commercial nature (use of a trademark, brand, name).
4. Objects of ownership in the industrial sector.
5. Copyright.
6. Goodwill.
7. Other intangible assets (in particular, some costs).

It should be noted that as the NMA is recognized not the result of research and intellectual works, but the exclusive right to use it for commercial purposes.

Intellectual property

The results of intellectual activity are also intangible assets. What does it concern? Predominantly assets on patent or copyright. The first category includes the rights arising in the scientific and design field. It:

• New inventions;
• Industrial designs;
• Technical models;
• Names and trademarks.

The second category includes property created on the basis of objective representations of a certain author. These are works of art, software, databases, integrated circuit topologies and other assets.

The main difference between copyright and patent law lies in the way it is recognized, which in this case resembles the relation of the part to the whole. If a patent is registered for any invention and it protects the work itself, then the copyright is fixed only for the form of expression of the subjective view of different owners for the same idea.

Expenses for organization of a legal entity

It would seem that the total between the costs and assets of the enterprise? In some cases, they can be reflected in the composition of the NMA. To do this, it is sufficient to observe several conditions:

• Expenses must be committed during the preparation of documents when the enterprise is established until it is registered with the regulatory authorities;
• They are aimed at paying labor to legal advisors, paying off registration fees and other costs for the legal opening of a legal entity;
• The amount of expenses should be included in the authorized capital of the organization.

Means that meet these criteria can be included with confidence in intangible assets. All further costs for changes in accounting policies, stamps, seals and other documents are attributed to general economic expenses.

Goodwill

Classification of intangible assets provides for the formation of such property as business reputation. It is considered only if the sale of the enterprise takes place. Goodwill is understood as the difference between the market and book value of a company, taking into account the earned reputation (positive or negative). It turns out that goodwill has its own price, which means that it is sold and bought in the same way as any other property.

In the case of the formation of a positive business reputation, it is said about the additional amount of the surcharge to be paid to the seller, since in the future the availability of goodwill will bring economic benefits to the new owner. Negative characteristics of the company in the market can lead to problems and difficulties that hamper activity and making a profit. This is due to poor management, the lack of an established sales system, a marketing plan, regular customers and connections, and for other reasons. This situation reduces the cost of the enterprise and requires a discount from the seller.

Rules for calculating depreciation

It has already been clarified what intangible assets are, what they are related to, what are their specific features. Realizing that this property, equated to fixed assets, you should ask the question: is it depreciated? Since NMAs do not have physical form, how will they wear out? In general, depreciation has the form of obsolescence. When determining the amount of deductions, the following rules should be used:

1. Estimate the value and useful life of intangible assets.
2. Depending on the specific situation and the provisions of the accounting policy, calculate the amount by one of three methods: linear, declining balance, production.
3. Deductions shall be made from the 1st day of the month following the date on which the asset is registered.
4. At NMA of non-profit organizations there is no depreciation.

To collect the accumulations of depreciation amounts, account 05 is used. This is a passive account of accounting: the credit is accrued, and the debit is written off. When balancing the balance, the credit balance is used to calculate the NMA indicator.

Characteristics of depreciation methods

Different types of intangible assets require an individual approach to their assessment and accrual of depreciation. The linear method is universal for any property, regardless of its useful life, the magnitude of the profit brought and other indicators. The method is often resorted to when it is impossible to determine the exact operational period, and it is difficult to predict the possible economic benefits in the future. The method assumes a uniform distribution by months of the total amount of depreciation.

The method of decreasing balance is used for NMA, the profit of which will be greatest in the first years of operation. The amounts are distributed unevenly, but remain constant for one period. The calculation uses the acceleration factor, which is regulated by the accounting policy. The indicator of the residual or market value is multiplied by a fraction: the numerator is the coefficient, the denominator is the remaining service life, determined in months.

The production method is the most flexible approach depending on the financial result obtained. The amounts are calculated directly in proportion to the volume of manufactured / sold products with the participation of NMA.

Initial value of intangible assets

To take property on the register it is necessary to know exactly the value of its value. Like other non-current assets, intangible assets are reflected in the accounting at the cost of the initial, identified on a certain date. The composition of the actual amount that was spent on the manufacture or acquisition of NMA includes:

• Accounts payable directly related to the creation / purchase of property;
• Net worth of the asset itself.

If there is any difficulty in assessing self-produced NMAs, a comparative analysis should be conducted with similar means on the market.

In the future, the enterprise has the right to revalue property according to the instructions of the accounting policy. In the case of a decrease in the price of an intangible asset, the original value changes. The difference between market and actual cost is written off to the financial results of the enterprise.

Lifetime of NMA

After determining the initial cost, it is necessary to establish the useful life of intangible assets. The duration of the action of property rights for the ownership of the NMA is taken as a basis. In other cases, they rely on the possible term for making profits. The main intangible assets are divided into two categories:

• With an uncertain operating period;
• With a limited period of use.

If the second type is clear, then for the first it is recommended to stop for 20 years. The definition of the operational period must necessarily be based on an analysis of the possible profit, since the period is used to calculate depreciation.

Accounting for intangible assets

To collect and group information about property that does not have a physical form, use two accounts: 04 and 05. The latter, as already known, is created for the accumulation of depreciation charges. Account 04 collects all data on the types, costs and processes that occur with the NMA. This is an active inventory account, the debit balance of which is reflected in the financial statements. In addition, the enterprise uses accounts 19.2 and 48 to characterize VAT and sell intangible assets.

An obligatory condition for the organization of NMA accounting is the maintenance of analytical accounts for each group or individual units of property. As an example, you can use the following sub-accounts:

• 04.1 "Intellectual Property".
• 04.2 "The right to use natural resources".
• 04.3 "Deferred costs".
• 04.4 Goodwill.
• 04.5 «Commercial designations».
• 04.6 "Other NMA facilities".

The analytical accounting data should be indicated in the annual accounts (Form No. 5) in the section characterizing the composition of non-material property.

Correspondence with other accounts

Knowing what intangible assets are, what it means, we can assume with which accounts of accounts the 04 account will interact. Based on the characteristics of the active account, debit operations characterize the reception of intangible assets for accounting by means of purchase, receipt, exchange. The interconnected accounts are 04 and 08, 50-52, 55, 75-76, 87-88. Write-off of intangible assets in special cases of sale, liquidation, exchange leads to a record in the credit of account 04. At the same time, there is interaction with the debit of accounts 06, 48, 58, 87.

Accounting for the receipt of NMA

The act of receiving intangible assets is a document on the basis of which the receipt of property is recorded. The order of reflection of NMA differs depending on the method of their production:

1. Purchase - the acquisition of assets for the stipulated by the agreement between the seller and the buyer a fee. The costs that must be included in the original cost are collected in the debit of account 08. After the intangible assets are ready for commissioning, the data is written off to account 04 with posting 04 04 Кт 08.
2. Barter is a mutually beneficial and equivalent exchange between subjects of economic relations. The accountant writes the account assignment Дт 08 Кт 60/76, characterizing the receipt of NMA through the fulfillment of obligations to the other party to the exchange. If the process is accompanied by a surcharge or additional costs, they are reflected in the debit of account 08. After calculating and using the wiring, the posting is similar to the first item: Дт 04 Кт 08. The transfer of the NMA is fixed in the credit of the TMC or MPZ accounts and the debit of the account is 46, 47 or 48.
3. Intangible assets may be obtained from the founders during the organization of the enterprise. An example of registration of the transaction is as follows: Дт 04 Кт 75.1.
4. When donating NMA to the ownership of the company, the amount is transferred to the credit of account 87.3 at the current market value of the facility. The account 04 is debited.
5. An obligatory condition is also the allocation of VAT, which occurs on the accounts of 68 "VAT" and 19.2. The process of acquiring the NMA is accompanied by posting Dt 19.2 Kt 60/76 or other settlement accounts. After the assets are accepted for accounting, the VAT amount is written off in equal parts within six months: Дт 68 "VAT" Кт 19.2.
6. VAT from NMA, purchased for economic and other needs outside production, is taken into account somewhat differently. The tax is covered by own sources of financing: Дт 29, 88, 96 Кт 19.2.
7. Released from the payment of VAT acquired intangible assets for production needs include in the original value the amount of tax.

Retirement of intangible assets in accounting

The property of this type can be debited from account 04 in cases of sale, donation, liquidation or redirection to the capital of other enterprises. These are the main reasons why intangibles are eliminated. Regardless of the method of writing off, the 48th account with an active-passive structure is used. In debit write down the value of the original value of the NMA, the amount of VAT on them, as well as the costs of retirement. The loan indicates the accumulated depreciation, as well as the amount of income from sales or other benefits.

Turnovers on account 48 allow you to distinguish the financial result from the process: revenue in the event of exceeding the turnover on the loan over the turnover on debit and vice versa. The data is written off to the appropriate account - 80, 84, 83, 98 (depending on the reason for the exit of the NMA from the balance sheet).

Intangible assets are no less important for the successful operation of the enterprise than other types of non-current assets. This type of ownership becomes a unique advantage in the market for the company in front of competitors.