Here at www.CheaperAccountant.co.uk we often come across clients who operate via a limited company structure and then buy an Intangible Asset via the company. This poses a unique accounting treatment as an Intangible asset isn’t a frequent item purchased by businesses and is often a one off purchase that affects the company balance sheet as well as profit and loss.
So what is an intangible asset?
An intangible asset is often referred to as a non-physical asset. This means that you can not in effect touch the asset. An intangible asset will also have a useful life of more than one year.
Examples of an intangible asset.
Typical examples of intangible assets could be items such as goodwill, a purchased brand name, or something as simple as a purchased client list.
How are intangible assets accounted for?
Intangible assets are accounted for as an asset on the company balance sheet and then depreciated or amortised over the useful life of the asset. A typical rate of depreciation could be 25% giving a useful life of four years.
The calculated depreciation expense becomes the expense recognised within the profit and loss account, rather than simply expensing the full purchase price.