Intangible assets vary from intellectual property for example trademarks and copyright, know how, innovation, well-established enterprise methods and management procedures, to client lists, relationships, brand names and reputation. Unlike physical and financial assets which may have an assured market price intangibles represent subjective factors for example knowledge, relationships and perceptions which are hard to determine or value. Subsequently, these are usually ignored on a company's balance sheet. Well known exceptions are trademarks and copyright contracts which are legitimately recognized and for which equivalent market data exists, along with some software applications and internally generated intangibles resulting from product development. Regular company accounting, although, doesn't normally need the valuation or disclosure of intangible asset values. In transactions, however, it is common for any buyer to pay for more than the book value of tangible fixed and current assets, so the left over value attributed to intangible assets is hard to ignore. Historically, it turned out lumped under what is known as goodwill, which effectively symbolizes the exact amount a buyer is ready to pay for that assets which usually can't be tangibly recognized and individually priced. Latest regulations need goodwill to be left on the balance sheet while not being amortised since it is argued that goodwill is continually rejuvenated by ongoing business activity and investments for example marketing and advertising. On the other hand, in certain acquisitions, goodwill has been covered straight out of reserves and thus vanished from the accounts, that has led to some strange circumstances in which company balance sheets post-acquisition usually do not reflect the entire value of the assets just acquired. In any case, the overall approach to accounting for intangible assets post-acquisition continues to be highly unsatisfactory. Recent regulations have attempted to remedy the situation.
Goodwill, alternatively, is simply kept on the balance sheet based on most GAAP/IFRS regulations. The regulations additionally require companies to evaluate for impairment of goodwill and intangible assets by allocating these into the cash generating units and demonstrating that predicted revenue, reduced at the company cost of capital, exceeds costs. This treatment stimulates companies to recognize whatever they have purchased and to recognize anything that is no longer revenue-generating as a cost within the income statement. As a result, accounting has made a significant maneuver away from formerly strong concentrate on cash accounting to fair value accounting. Perhaps obviously, this has caused dilemma amongst users of financial statements. Recent regulations such as IFRS 3, however, apply solely to acquisitions. Most internally generated intangibles continue to be treated as costs that needs to be immediately expensed, with no value being generated for the balance sheet.