Intangible assets are those assets which do not possess physical existence like other assets such as property, equipment land & plant. The valuation of intangible assets is difficult than the valuation of tangible assets because handling intangible assets is not as easy as it seems. Sometimes it is not certain that how much benefit the intangible assets will provide in future. Usually, the intangible assets are for a longer period of time and have a lifespan for more than 1 year. The main intangible assets of the organization include:

Copyrights

Trademarks

Patents

Licensing agreements

Franchises

Brand Equity

Domain names

        The intangible assets appear on the balance sheet only if they have identifiable value or have a significant level of lifespan. The intangible assets have value are included in the balance sheet because the cost is associated with such assets and these assets amortized over the years according to the amortization schedule. However such assets have not appeared on the balance sheet which does not have recognizable value. For example, an intangible asset that has been created internally in the organization and does not have any price than such assets are not included in the balance sheet (Needles & Powers, 2010).

Valuation of intangible assets

        The intangible assets that have been purchased or acquired from another corporation are recorded on cost. Such costs include expenditure which has been incurred for making the asset usable for the organization. For example legal fees, incidental expenses and purchase price are some of the expenditure that is recorded and included in the balance sheet. The accounting treatment of tangible assets and intangible assets is not much different. The accounting treatment of the intangible assets is subject to whether the intangible has indefinite life or has a limited life span.

            The acquisition of copyrights might be capitalized in the balance sheet however the expenses related to research and development should be expensed. The reason for expensing the costs is that the authorities believe that the intangible assets that are created within the organization do not have any relationship with their physical value. It means that expensing is the right thing to do. Intangible assets get their value from the privileges & rights allowed to the corporation for utilization. As discussed earlier the intangible assets are expensed based on their useful life. These assets are amortized using the straight-line method (Nørreklit, 2017).

Effect on the Financial Statement

            It is evident that if the organization is not going to include those intangible assets in the balance sheet which have identifiable value and significant life span than the balance sheet will not represent the actual financial position of the corporation. It means that the value of the total assets will decline. In short, it can be said that the valuation of intangible assets has a significant impact on the financial statement. It means that saying non-monetary assets may not affect the financial statements is not the right thing to say.

            For example If the financial managers are not going to evaluate the intangible assets accurately than the financial statements might not provide accurate information which not only decreases the reputation of the corporation but also the investors who invest in the corporation after evaluating the statements might lose their confidence on the organization when they are going to realize that the corporation does not prepare their statements accurately. An error in financial statements would also lead to wrong decision-making which will ultimately can cause huge financial loss for the organization. It means that it is important to create a financial statement according to the guidance of the GAAP (Needles & Powers, 2010).

Conclusion on the financial information to the stakeholders of the organization

            After critically analyzing the statement it can be said that if intangible assets are identifiable however if they are not recorded appropriately than it might affect the value of the total assets that might mislead the stockholders of the corporation. Therefore saying that intangible assets do not affect the financial statements is not completely correct. It is obvious that when the accountants are going to follow the specific instruction for recording the intangible assets than the financial statement will be prepared accurately. The valuation of intangible assets is difficult than the valuation of tangible assets because handling intangible assets is not as easy as it seems. It is evident that if the organization is not going to include those intangible assets in the balance sheet which have identifiable value and significant life span than the balance sheet will not represent the actual financial position of the corporation.

References of intangible assets appear on balance sheet

Needles, B. E. & Powers, M., 2010. Financial Accounting. s.l.:Cengage Learning.

Nørreklit, H., ed., 2017. A Philosophy of Management Accounting: A Pragmatic Constructivist Approach. s.l.:Taylor & Francis.