There are times when a company generates an intangible asset that it may feel to be separately valued. This asset may very well be a website, software or anything similar that the company uses in its business to either increase revenue or to achieve cost-efficiency. In assessing whether the asset falls into the recognition criteria as an asset and not current period expense, there are two considerations that have to be taken into account.

First off the management needs to identify the asset itself – is it software perhaps or is it a website? Alongside with this identification the management needs to be able to assess and identify the benefits the company will gain from using this asset. They need to be clearly stated and understandable.

The second consideration is a bit more difficult to grasp – the management needs to be able to reliably determine the cost of generating the asset. The reason why this is more often difficult to assess is the shear matter of fact – the cost of generating the asset are usually the same as operating expenses relating to everyday business operations and distinguishing them from asset generating costs is a good head-ache if you ask me.

To be able to do this assessment, there are separate guidelines for recognizing and measuring an internally generated intangible asset which we will go over in our future posts about internally generated assets. As the matter is increasingly popular in many companies and there are huge controversial understandings of these costs, there should be a common and clear practice in recognizing some if not all of those costs as an internally generated intangible asset.