Accounting for intangible assets in accounting: features, requirements and classification

2024 Author: Howard Calhoun | [email protected]. Last modified: 2024-01-17 18:37

Intangible assets of the organization are formed and accounted for in accordance with applicable law. There is an established methodology by which legal entities reflect this property in the accounting documentation. There are several groups of intangible assets. This is an important point for the procedure for reflecting property in accounting documentation. Features of accounting for intangible assets, the main norms established by law, will be discussed further.

General definition

In a market economy, not only tangible assets are a factor in the formation of an organization's income. To date, it can already be unequivocally said that the indicator of the company's net profit depends on how technological and innovative the production process is. Therefore, there is such a thing as intangible assets. They are devoid of material substance, but their role in the overall processmaking a profit is sometimes not only great, but also decisive.

For this reason, accounting for intangible assets (IA) is kept. This is a new accounting item. It appeared at the stage of formation of market relations in our country. However, in all countries, the issue of accounting, estimate, the receipt of such assets on the balance sheet is constantly discussed. There is no single approach to doing this work. For this reason, there is no International Standard for accounting for intangible assets.

It is worth starting with the fact that intangible assets in accounting are a non-current asset that is reflected in the balance sheet in article 110. This is the least liquid type of enterprise property, because it is difficult to quickly convert it into cash. The procedure for their accounting is regulated by the Accounting Regulation PBU 14/2007 as amended. dated 24.12.10 No. 186n.

According to this document, the following rights belong to intangible assets, which are used by the enterprise for more than 12 months in its business activities:

• Arising from contracts with authors for the use in the course of the production process of their works of literature, science, art.
• For co-ownership of programs for information technology, as well as databases and other software.
• On the use of patents in the field of innovative inventions, industrial designs, the achievement of modern science and technology, model certificates, trademarks, licenses, etc.
• On know-how and other similar inventions.

Also,intangible assets in accounting are also the goodwill of an organization.

Criteria for inclusion in intangible assets

It is worth noting that accounting for funds and intangible assets is done in completely different ways. Fixed assets have a material, material expression. Intangible assets, in order to be considered as such, must meet certain criteria. They can be economic or legal. Sometimes an organization must prove to inspection bodies that a particular type of property can be considered intangible assets.

In accordance with legal criteria, accounting for intangible assets is possible in the following cases:

1. The relevant regulation should state the entity's right to own the patent, license, or similar product. There must be an agreement concluded with the author. Patents, licenses, software, etc., cannot be treated as intangible assets.
2. For each legal category, a prescribed regime should apply.

The economic criteria are:

1. Intangible assets may include property that has been used by the enterprise for more than one year.
2. Such means of production must necessarily generate income.

In other words, funds in the line of intangible assets can be credited to the balance of an enterprise only if an agreement is concluded with the owner of technologies, patents, etc. Moreover, to sell their rights to the results of intellectualactivities, the organization cannot, since this type of asset has no material expression.

Intangible assets generate income for the organization. If this does not happen, the chief accountant must decide on the need to exclude such property from the balance sheet. Regulatory authorities will require proof that intangible assets are profitable. Failure to do so may result in certain tax implications.

Initial estimate

In PBU accounting for intangible assets is carried out in a special way. The unit is an inventory object, which means the totality of the rights of one patent or contract.

To accept intangible assets on the balance sheet, its initial cost is taken into account. It is determined on the date of its adoption. Since such property does not have a material expression, it is more difficult to establish its initial value than when accepting fixed assets on the balance sheet.

The actual cost of intangible assets is the price an entity paid in the process of acquiring a patent or other similar contract, as well as the costs incurred in the process of creating the conditions for the use of an asset.

In the process of accounting for intangible assets, the costs of their acquisition are also summed up. These expenses include:

• The cost that the organization pays under the contract at the time of alienation of the rights to the result of the intellectual work of the seller.
• Customs fees and duties.
• Amounts of non-refundable taxes, duties,government fees that an organization is required to pay in the process of acquiring intangible assets.
• Remuneration to intermediaries who helped acquire an asset.
• Cost of information, consulting services.
• Other expenses associated with the purchase of intangible assets.

When taking into account the primary cost of intangible assets, in addition to the above expenses, the accountant has the right to take into account the amounts of other expenses. These include the cost of services that the organization pays to third parties under a contract, orders, or when performing research, experiments, design and technological work.

In addition, this category includes the cost of remuneration of employees involved in the process of creating intangible assets or in the performance of research, construction, technological work, as well as deductions for social needs. The initial cost of intangible assets also includes the costs of maintaining research laboratories, equipment, and other fixed assets for special purposes.

Not included in the original cost of intangible assets

In the accounting process, the receipt of intangible assets is not included in the costs of their creation the following items:

• Amounts of refundable taxes (except as provided by the legislation of the Russian Federation).
• General expenses not related to the acquisition of intangible assets.
• Expenses incurred in past reporting periods for research and development work.

It is also worth noting that in the course of accounting for intangible assets, organizations are not included in the amountthe initial cost of expenses on loans received, loans for the purchase of intangible assets. The exception is when the asset is an investment.

It is worth noting that donated intangible assets should be included in the initial cost of intangible assets. You can determine the amount that needs to be put on the balance sheet based on the current market value of the asset at the date of donation. This concept should be understood as the amount of money that the company could receive in the event of the sale of the resulting asset. It can be determined only after an expert assessment.

Example of purchase transactions

Accounting for fixed assets and intangible assets in any organization requires the correct reflection of acquired and disposed assets. To do this, the accounting department conducts the appropriate postings.

Accounting for the main intangible assets is carried out in accordance with the established methodology. Intangible assets are accounted for on account 04. On subaccount 04.01, intangible assets are taken into account directly, and on subaccount 04.02, R & D expenses.

To reflect the transaction for the acquisition of intangible assets, you need to make several entries. For example, the contract states that the price of acquiring the right to own intellectual property is 350 thousand rubles. without VAT. To register this agreement, the company had to pay a state duty. It amounted to 9 thousand rubles. To enter the acquired trademark into the state register, it was necessary to pay another 2.5 thousand rubles.

To reflect the listed transactions, the accountantshould reflect transactions as follows:

Operation	Dt	CT	Amount
Payment for the purchase of a trademark	76	51	413 000
Cost of contract	08.05	76	350,000
VAT on asset ownership	19.02	76	63,000
VAT write-off	19.02	68.02	63,000
State duty paid	76	51	9 000
Inclusion of registration costs for the acquisition of intangible assets in expenses	08.05	76	9 000
Paying the registration fee	76	51	2 500
Included costs	08.05	76	2, 5
Primary value of the asset accepted on the balance sheet	04.01	08.05	361 500

Corresponding transactions are processed if the required package is availabledocuments. The company must have an invoice, contract, act of acceptance, payment orders. The accounting entries for intangible assets, given above, allow you to understand the essence of the procedure for registering property.

Revaluation

During the analytical accounting of intangible assets, the initial cost is not subject to change. Only in cases provided for by law, it is possible to carry out such a procedure.

A change in the initial value of intangible assets is allowed in case of its depreciation and revaluation. For commercial organizations, such a procedure can be carried out no more than once a year at the end of the reporting period. At the same time, groups of homogeneous intangible assets are re-evaluated. The current market value is taken into account, which is determined at market prices on the revaluation date.

If a revaluation decision is made, then in subsequent periods such assets will have to be revalued regularly. Only in this case, their value will not differ significantly from the market.

To revalue intangible assets, the residual value is recalculated. If property needs to be revalued, the result is credited to additional capital. This amount is equal to the amount of the markdown that was carried out in previous years.

If it is required to carry out a markdown of intangible assets, the amount is credited to the financial result and refers to the item of other expenses. Added capital is reduced by the amount of the markdown.

In the case of accounting for the disposal of intangible assets, the amountrevaluation is transferred from additional capital to retained earnings. The results of the revaluation are reflected in accounting separately.

Depreciation

Special attention deserves the accounting of depreciation of intangible assets. If such property has a useful life, appropriate accruals are made. If the asset is not characterized by such quality, depreciation is not charged.

When intangible assets enter the balance of an organization, the organization determines its useful life. The period is expressed in months. During its period, the organization will use this asset. In some cases, the useful life is measured by the number of products produced in the future or other physical indicators are used.

Annually, the organization checks the useful life. If necessary, it is clarified. Corresponding adjustments are reflected in accounting.

Accounting for depreciation of intangible assets is carried out in one of the following ways:

• linear;
• write-offs in proportion to the amount of work or products;
• reducing balance;

The company determines the choice of depreciation method independently, based on the calculation of the expected rate of income. If it is impossible to determine this indicator with a high degree of probability, the depreciation of intangible assets is calculated using a straight-line method.

Depreciation example

Depreciation of intangible assets in accountingaccounting is calculated according to the established methodology. The cost of the asset will be offset by depreciation and reflected in account 05. The organization usually charges depreciation once a month. For trading organizations, the operation is carried out on the debit of account 44, and for manufacturing companies - on the debit of accounts 23, 20, 26 or 25.

You can charge depreciation with or without the participation of account 05. Postings will be as follows:

Operation	Dt	CT	Amount
Charging depreciation to account 05	20, 23, 44	05	with VAT
Without using account 05	20, 23, 44	04.01
For an asset operated by a third party	91.02	05

Since 2016, companies that use the simplified tax system have acquired the right to reflect intangible assets and not charge depreciation, but write off assets as expenses at the time the organization's expenses arise.

Tax accounting of intangible assets is a matter to which the accountant must pay due attention. If, for some reason, the inspection authorities treat the asset as something other than intangible assets, certain difficulties may arise. There are tax implications. So, for example, intangible assets are depreciated for income tax, which increases the cost of production. If the profit from the use of intangible assetsis not proven to be real, depreciation will be regarded as an understatement of the taxable base for income tax.

Disposal of intangible assets

If an intangible asset is removed from the balance sheet, cannot be profitable for the company, an appropriate procedure is required. The organization conducts a similar procedure if the term of ownership of the right to a patent or license has expired. The disposal of intangible assets is also carried out if the company alienates the right to the result of an intellectual product, the transfer of this right to other persons, including without a contract.

If an intangible asset has become obsolete, it must also be written off the balance sheet. In some cases, disposal is formalized when an asset is transferred to the authorized capital of another enterprise, when it is exchanged or donated, and also in other cases.

At the same time, the amount of accumulated depreciation is written off. Income or expenses arising from the write-off of intangible assets are included in the financial results as other income or expenses. The write-off date is determined by the relevant agreements, regulations that the company has concluded.

Accounting for intangible assets upon disposal is reflected in account 91. If intangible assets are transferred to the authorized capital of another organization, the contractual value of the asset may be established. Its value quite often exceeds the balance sheet value. The excess amount in this case should be reflected in credit 98 of the account. In case of sale or gratuitous transfer of intangible assets, the transaction is subject to VAT. Postings in this case can be as follows:

Operation	Dt	CT	Amount
Write-off of intangible assets with residual depreciation value	05	04.01	with VAT
Residual value	91.02	04.01	with VAT
Loss	99.01	91.09	with VAT
Sale of intangible assets under the contract	62.01	91.01	with VAT
Depreciation written off	05	04.01	with VAT
VAT accrued	91.02	68.02	with VAT
Money received on the current account	51	62.01	with VAT

Goodwill

Special consideration requires the goodwill of the company, which can also be considered an object of intangible assets. For accounting, this value requires a correct calculation. This is the difference between the purchase price paid by the buyer to the seller in the process of acquiring the enterprise as a single production complex, and the sum of the value of the company's property at the date of purchase.

Good reputationorganization is seen as a premium on the cost that the buyer pays in the process of waiting for economic profit. Such unidentified assets are accounted for separately as a separate inventory item.

If the reputation of the company is negative, this intangible asset should be considered as a discount in the price in the process of buying and selling the organization. It arises due to the lack of factors of stable buyers. Also, the company lacks sales and marketing skills, a reputation for quality and business connections, management experience, and sufficient qualifications of employees. Other factors can also create a negative business reputation.

Acquiring business reputation, the company amortizes it. The useful life of this asset is 20 years. If goodwill is positive, it is amortized on a straight-line basis. If the company gets a negative business reputation, it is attributed to the financial result, summed up with other income.

Intangible assets are a relatively new object of accounting, they nevertheless pushed the means, tools of production. However, involving such assets in circulation, the company faces a number of problems. They are related to the accounting, use and management of such property. Since the legislative framework in this direction is imperfect, there are no clear classifications of intangible assets, it becomes difficult to analyze intangible assets.

Today, accounting for intangible assets is undergoing certain changes. This is necessary to draw up standards and methods for the use of such property. Work is underway to develop a new FSB. Criteria for the formation of the initial cost, depreciation, disposal from the balance sheet will be reviewed. Other issues will also be considered. This will make it possible to keep records of intangible assets in a standardized manner, facilitating the work of the accounting service of enterprises and organizations.