Types of Intangible Assets

1. Goodwill: When an entity acquires another entity, goodwill is the difference between the purchase price and the amount of the assets and liabilities acquired. Goodwill is the extra premium paid to acquire any entity. Goodwill does not independently generate cash flows for the acquiring entity. It is considered a Non-Current Asset and is not amortised like other intangible assets. Real Case Scenario: Walmart paid $13.6B as Goodwill to Flipkart while acquiring.

2. Research and Development: Companies nowadays have been investing a huge amount of their budget in R&D, as it has helped businesses acquire new business knowledge along with new potential business areas. Any Patent generated by R&D can provide greater economic value over the years, which helps any business grow by increasing their market offering and in turn capturing market share for them. Real Case scenario: Amazon spent the most on research and development in the fiscal year 2022, with over 73 billion U.S. dollars, which helped it to become the market leader.

3. Intellectual Property Rights (IPR): “Creative Mind is the biggest Asset anyone can have”, This holds as creativity, thinking or any design creates one of the most important intangible assets, i.e., Intellectual Property Rights. Any unique design, idea, technology, formula, etc., identified by any individual or entity is protected through these IPRs. IPRs are extremely valuable for any entity as they also, generate future economic benefits for the entity, in some cases, IPRs are the main source of revenue for entities. IPRs are extremely crucial for these entities to survive in the market. IPR can be patents, trademarks, copyrights, secret formulas, etc. Real Case Scenario: Under the new budget launched by the central government, the allocation for the IPR ecosystem has been raised by 15% to ₹329 crores.

4. License or Rights provided by Government: Entities engaged in mining, and exploration of minerals or natural resources. Requires licenses and rights by the government which authorises the entity to conduct the business activity for some time, on the land which is owned by the government or any private party. These rights and license helps the entity to earn revenue, and hence these act as a basis of intangible asset. Real Case Scenario: Aramco, a Saudi-based company has gained $161 billion worth of profit by exploring gases and petroleum.

5. Customer Database: In today’s world, where data is very crucial, entities emphasises their data, which contains the important data of customer like their buying patterns, demand structure, spending behaviour, and other customer-related data. They follow these basic data to generate new products and to maintain the demand and supply. By going through these insights provided, entities generate economic values from these databases and hence an intangible asset.