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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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How are intangible assets distinguished from tangible assets? What do they have in common?

To determine

State the manner in which an intangible asset would differs from the tangible asset and describe the common things that the intangible assets and tangible assets hold.

Explanation

Intangible assets: These are the long-term assets which are not physical in nature, but possess value. The intangible assets would be amortized over their definite useful life or limited useful life, and those with indefinite or unlimited lives are not amortized.

Tangible assets are the assets which have physical existence, and they represent the ownership of the assets. Whereas, intangible assets are the assets which have no physical existence and it represent the ownership of the rights of the company which owns and uses them. These rights and privileges often arise from legal or contractual rights. Moreover regarding the future economic benefits, the intangible assets usually have a higher degree of uncertainty.

Bothe the intangible and tangible assets have the following characteristics in common:

  • Both the intangible and tangible assets are held for use in the ordinary course of business and are not held for investment.
  • Both the intangible and tangible assets have useful lives of more than 1 year.
  • In order to generate economic benefits, they also derive their value from their ability.
  • If the assets lives are fixed, then the assets may be expensed by a company in the periods in which it is used in operation.

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