What is the journal entry to record the cost of an intangible asset? - Universal CPA Review (2024)

FAQs

What is the journal entry to record the cost of an intangible asset? - Universal CPA Review? ›

When a company purchases or acquirers an intangible asset, they can capitalize the cost of that asset on the balance sheet. The initial entry would be to debit intangible assets for the addition of the asset, and then credit cash for the cash outflow related to the purchase.

Intangibles are recorded at their acquisition cost, as are tangible assets. The costs of internally generated intangible assets, such as a patent developed through research and development, are recorded as expenses when incurred. An exception is legal costs to register or defend an intangible asset.

Tangible assets are expensed using depreciation, and intangible assets are expensed through amortization. Depreciation generally includes a salvage value for the physical asset—the value that the asset can be sold for at the end of its useful life. Amortization doesn't take into account a salvage value.

Amortization is the mechanism used to allocate the cost of an intangible asset over the estimated useful life of the asset.

Amortization in accounting is a technique that is used to gradually write-down the cost of an intangible asset over its expected period of use or, in other words, useful life.

You must record amortization expenses in your accounting books. To do so, debit the amortization expense account and credit the intangible asset. This way, your entries will balance each other out. You debit your amortization expense account because it is an expense.

Internally developed intangible assets do not appear on a company's balance sheet. When intangible assets have an identifiable value and lifespan, they appear on a company's balance sheet as long-term assets valued according to their price and amortization schedules.

The initial entry would be to debit intangible assets for the addition of the asset, and then credit cash for the cash outflow related to the purchase. Assuming it is a finite life asset, the asset should be amortized over its useful life.

While purchased/acquired intangible assets will always be capitalized as a noncurrent asset on the balance sheet and subsequently amortized, the development of intangible assets internally will be expensed on the income statement.

Amortization. Amortization is the process of allocating the cost of an intangible asset over its useful life. Intangible assets include licenses, patents, copyrights, goodwill, and tenancy agreements. The sum of all amortization expenses billed against an intangible asset is known as accumulated amortization.

What is the allocation of the cost of an intangible asset called? ›

Answer and Explanation: Cost allocation of an intangible asset is referred to as amortization.

The acquisition cost is then amortized according to the legal life or the estimated useful life, whichever is shorter. If the life is considered indefinite or unlimited do not amortize the intangible asset.

(They fall under FASB ASC 350 accounting standards: Intangibles – Goodwill and Other.) To account for intangible assets, they're recorded as long-term assets and amortized over their useful life (i.e., the duration they contribute to a business's valuation).

The company should subtract the residual value from the recorded cost, and then divide that difference by the useful life of the asset. Each year, that value will be netted from the recorded cost on the balance sheet in an account called "accumulated amortization," reducing the value of the asset each year.

Amortization is the systematic write-off of the cost of an intangible asset to expense. A portion of an intangible asset's cost is allocated to each accounting period in the economic (useful) life of the asset.

Accounting for Impaired Assets

The journal entry to record an impairment is a debit to a loss, or expense, account and a credit to the related asset.

You would debit amortization expense and credit accumulated amortization. Accumulated amortization is a contra-asset on the balance sheet that is netted with gross intangible assets to show intangible assets net of accumulated amortization (net carrying value).

6.7 Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life.

Many intangible assets (such as trademarks and copyrights) are reported on the balance sheet of their creator at a value significantly below actual worth. They are shown at cost less any amortization. Development cost is often relatively low in comparison to the worth of the right.

Intangible assets are measured initially at cost. After initial recognition, an entity usually measures an intangible asset at cost less accumulated amortisation. It may choose to measure the asset at fair value in rare cases when fair value can be determined by reference to an active market.

What is the writing of the cost of intangible assets? ›

Writing off the proportionate cost for a period for an intangible asset is termed as amortisation. Amortisation basically means to write off/reduce the value of the intangible assets.

Cost model: The intangible asset is carried at its cost less accumulated amortization (similar as depreciation) less any accumulated impairment loss. Revaluation model: The intangible asset is carried at its fair value at the revaluation date less accumulated amortization less any accumulated impairment loss.

Many intangible assets (such as trademarks and copyrights) are reported on the balance sheet of their creator at a value significantly below actual worth. They are shown at cost less any amortization. Development cost is often relatively low in comparison to the worth of the right.

Yes, Intangible assets should be recorded separately in the balance sheet in the asset side under non-current assets as an intangible assets. As these assets carry its value and are recognizable for more than one year, hence, as a noncurrent assets.

Under both IFRS and US GAAP, intangible assets lack physical substance, but meet the definition of an asset (i.e., it is expected to benefit the organization for more than a year). Examples include patents, trademarks, copyrights, right-of-ways (easem*nts), and others.