The Economy of Intangible Assets

I. Intangible Assets

1.1 . General Notions of Intangible Assets

Intangible assets comprise all the assets lacking a physical form (e.g. tangible fixed and financial assets, along with current assets), but directly contributing to obtain the profit of a company.

The number and description of intangible assets that can be separately evaluated, shown in the balance sheet and subject to depreciation are very different, counting on the size and nature of the patrimonial units’ activity.

To be entered in the patrimonial units’ assets, an intangible item shall meet the following requirements :

• Acquisition technique, through the purchase or acquisition of intangible assets from personal resources, individually and identifiably (when recorded separately in the balance sheet) or globally and unidentifiably (when recorded in the trade fund good-will)

• Ability to transfer ownership, generally by sale, if certain intangibles can be sold individually (like the right to franchise, the patent, the copyright), they must be identified and recorded in the balance sheet where they cannot be transferred individually, having a value inseparable from the overall value of the company, then intangible assets are recorded only in this position in the balance sheet

• Precise identification of the asset, through a precise name, such as trademarks, copyrights, software, CD costs, distribution network; if it is impossible to identify a specific intangible asset, it can be placed in a distinct position of the balance sheet, together with other intangible assets which cannot separately highlighted (commercial fund or goodwill);

• Ability to establish a finite life of intangible assets, e.g. patents are protected 17 years in the U.S. and 20 years in Romania, and goodwill can be amortized in Canada, France, Japan.

According to a recent approach by the Australian Accounting Research Foundation, developed based on research conducted by London Business School, these are the criteria for the accounting of intangible assets:

• Purchase of intangible assets will be recorded in the balance sheet at their acquisition cost;

• Intangible assets produced by the company can be recorded in the balance sheet;

• Periodical reevaluation of intangible assets is allowed;

• Intangible assets can be amortized over a period of time equal to that during which the owner obtains an economic benefit from their use;

• Any assessment is done by an independent professional expert.

1.2. Intangible Assets in Romanian Accounting Legislation

Regulation of implementing the Accounting Law no. 82-1991 specifies the nature of intangible assets and explains their depreciation. Thus we can distinguish:

• Elements that are separate from intangible assets;

• Goodwill as a global expression of intangible fix assets, calculated as the excess value of assets relative to the distinct intangible assets recorded in the balance sheet.

The structure and the methods of amortization of intangible fix assets are as follows: the provisions of Article 47 shall suggest a classification of intangible assets, thus they include : establishment expenses, research and development expenses, concessions, patents, licenses, trademarks and other similar rights and assets, goodwill and other intangible assets.

The establishment expenses are defined by Article 47 of the law as the costs of setting up and modifying the patrimonial unit (taxes and other expenses of registration and registration charges for the issuance and sale of shares and bonds, market research expenses and advertising and other such expenses related to the creation or modification of unit property). The costs of this nature are amortized over a period of 5 years.

The research and development expenses are presented in Article 49. They include expenses incurred in carrying out works or strictly individual research goals, which guarantee achieving the expected efficiency of their application in economic units. Analytical accounting research and development spending is taken into categories of works or objectives.

The intangible assets in concessions and other similar rights include the valuable assets taken over with that title by the receiving unit, according to the contracts concluded in accordance with Article 50 of the Implementing Regulations of the Accounting Law no. 82/1991.