Some of the most valuable things a business owns cannot be touched. A patent stops competitors from copying an invention. A trademark makes customers recognize a brand at a glance. A franchise lets a business sell under a famous name. These rights can be bought and sold for large sums, and they help earn revenue for years, so they are assets. Because they have no physical substance they are called intangible assets, and they follow the same basic rule as equipment: record them at cost, then expense that cost over the years they help earn revenue, if those years are limited.
Kinds of intangible assets
| Intangible | What it gives the owner | Life for accounting |
|---|---|---|
| Patent | The exclusive right to make, use and sell an invention. In Canada a patent lasts 20 years from the filing date. | Finite: the shorter of the remaining legal life and the useful life |
| Copyright | The exclusive right to reproduce and sell an original work (writing, music, software, art). In Canada it generally lasts for the creator's life plus 70 years. | Finite: usually a much shorter useful life than the legal life |
| Trademark (trade name) | The exclusive right to a name, logo or symbol that identifies a brand. Registration can be renewed again and again. | Often indefinite if the business intends to keep renewing it |
| Franchise | A contract to sell a company's products or services under its name in a territory, for a set term. | Finite: the term of the agreement |
| Licence | A right granted by a government or company, such as a broadcast or software licence. | Finite if it expires; indefinite if renewable at little cost |
| Goodwill | The extra value of a whole business (reputation, location, loyal customers, skilled staff) beyond its separate assets. | Indefinite: never amortized |
Amortizing finite-life intangibles
A purchased intangible is recorded at its purchase price plus costs such as legal and registration fees. If its life is finite, its cost is amortized, normally by the straight-line method with no residual value (an expired patent is worth nothing). The amortization period is the shorter of its remaining legal life and its useful life: a patent may have 15 legal years left, but if the technology will be obsolete in 8, it only helps earn revenue for 8. Partial years are handled to the nearest month, just like equipment.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Jan. 2, 2026 | Patents | $100,000 | |
| Cash | $100,000 | ||
| To record purchase of a patent ($96,000 price + $4,000 legal and registration fees) | |||
| Dec. 31, 2026 | Amortization Expense — Patents | $12,500 | |
| Accumulated Amortization — Patents | $12,500 | ||
| To amortize the patent over its 8-year useful life |
Goodwill: only when a business is bought
When one business buys another, it often pays more than the fair value of the separate assets minus the liabilities it takes over. It pays extra for things that cannot be listed or sold one by one: an established customer base, a good location, an experienced team, a strong reputation. That excess is goodwill. The identifiable assets and liabilities are recorded at their fair values on the purchase date, not at the seller's book values.
| Date | Account | Debit | Credit |
|---|---|---|---|
| July 1, 2026 | Accounts Receivable | $70,000 | |
| Inventory | $150,000 | ||
| Equipment | $300,000 | ||
| Building | $400,000 | ||
| Goodwill | $110,000 | ||
| Accounts Payable | $45,000 | ||
| Bank Loan | $135,000 | ||
| Cash | $850,000 | ||
| To record purchase of a competing print shop |
- Goodwill is not amortized. It is tested for impairment; if the purchased business later proves to be worth less, goodwill is written down and an impairment loss is reported.
- Internally generated goodwill is never recorded. A business that builds a great reputation itself has no transaction and no reliable cost to record, so it would only be guessing.
- The same goes for brands and customer lists the business builds itself: the costs of creating them are expensed as they are incurred.
- Research and development: research (searching for new knowledge) is always expensed, because its future benefit is too uncertain. Development (turning research into a specific product or process) may be recorded as an intangible asset only when strict criteria are met, such as the product being technically feasible and the business intending and being able to complete and use or sell it; otherwise it is expensed too.