Intangible assets

[Joanne Ng]

Hi everyone, I would like to ask , can a boat builder company capitalised their boat drawing as an intangible assets ?? Thank you in advance.

 

[Fidget]

Intangible means lacking physical substance. So if a drawing exists, it has substance to it since it'll be either on some sort of paper or canvas. Asides from that, the existence of a drawing of a boat isn't likely, on its own, to bring any economic benefit to the company, so it's difficult to see how it could be capitalised in any shape or form.

That said, if the company went on to patent the design and then received money from others wanting to use that design, then there may be an intangible asset because the use allowed of the design which is owned by the company is generating money for the company.

It's not a straightforward thing, but that's the general gist of it.

 

[Joanne Ng]

Intangible means lacking physical substance. So if a drawing exists, it has substance to it since it'll be either on some sort of paper or canvas. Asides from that, the existence of a drawing of a boat isn't likely, on its own, to bring any economic benefit to the company, so it's difficult to see how it could be capitalised in any shape or form.

That said, if the company went on to patent the design and then received money from others wanting to use that design, then there may be an intangible asset because the use allowed of the design which is owned by the company is generating money for the company.

It's not a straightforward thing, but that's the general gist of it.

Hi Fidget, thank you for the comment.
It’s really help.
My boss was saying that the drawing worth a lot money, he can just sell it if somebody want to buy that’s y he want to capitalised. Can we say that this is the future economic benefit that will flow to company in future? Or according to FRS 38, if the five criteria under development cost is met, we can capitalised right?

 

[Fidget]

Wrong. A drawing is not intangible and therefore IAS 38 doesn't apply to it.

If however, it is actually worth a lot of money, then it's possible that it could be capitalised, just not as an intangible asset. Assets that fall into the category of works of art, or even just 'office art' pieces that have been acquired by a company can be capitalised for their value, so it's therefore reasonable that an 'in-house' production can be capitalised as well in much same way as assets constructed by a company for use in the company.

However, the problem you have is placing a value on the drawing. With acquired works, their value is established already. With an in-house drawing, all you've got is your boss's say so, which isn't enough. It would probably take an independent valuer specialising in that type of artwork to estimate how much it could be worth before you could capitalise it.

 

[Joanne Ng]

Hi Fridget, thank you very much for the reply.

This means we can just capitalised as assets but the amount will need a valuer to value.

However, this is one of my concerns also, because we are small company so it is unlikely that my boss will spend the money to do the valuation.

 

[SSM0011]

http://www.willamette.com/pubs/presentations/ncva_valuing_intangibles_feb2009.pdf
I would not suggest neophytes tackling this on their own.

 

[WeirdVibeInc]

However, the problem you have is placing a value on the drawing.

What about developing drawings for later use to produce comic books and graphic novels? My S-corp paid artists to produce artwork as work for hire. In later years, it printed books using that artwork, and sold them.

I was advised by a CPA to credit those labor costs to increase an asset account for the project, then list the amounts as "Assets, work in progress" on 4562 line 42, but to claim no amortization of those costs until they actually generated income in later years. Now I'm thinking it seems like a better idea to just deduct the labor costs and carry those forward indefinitely on my 1040 as NOL. I'm not sure what to do. I think it's better to claim them as labor costs, because then even for the costs in 2017 I get 20 years versus 15 years under § 197, and in 2018 and later I can carry forward the NOL indefinitely. I wish I had never hired this guy. His numbers were complete nonsense.

I also paid for pre-press comic book artwork development on these projects before incorporation. I was advised by a CPA that I could consider them intangibles acquired by the corporation in exchange for stock at the time of incorporation. Amounts over the $5000 startup deductible would then be amortized ratably over 180 months under 26 U.S.C. § 197.

Here is the kicker for me: https://blogs.cfainstitute.org/inve...issance-in-intangible-valuation-five-methods/. Maybe I can make a case about the acquisition costs being what I paid to develop them prior to incorporation, under the "replacement cost method less obsolescence," since creative works don't really get obsolete, although the replacement cost would grow with inflation. However, the article says "Under GAAP, internally developed intangible assets tend not to appear on the balance sheet and related costs are expensed as incurred. Under IFRS, such assets are recognized only if certain criteria are met." Ugh. I think that means I need to go back to the drawing board and expense all post-incorporation development, then carry it forward personally as NOL. Yuck.

Regarding the original post, is a script, sketch, or plan really "tangible?" Does it require a formal copyright or patent to become "intangible" intellectual property? In the case of copyright, I think that's not the case. Creating something that expresses an idea as an original work or obtaining it as work for hire means it's yours, whether or not you register the copyright to formalize that, as I understand it. And then no one can copy it or create substantially derivative works from it without paying me. If the original poster refers to a "boat drawing" in terms of a fully realized artwork or engineering design that imagines a boat with a distinct style and form, then it seems like someone else making a real boat that looked exactly like that would infringe on their ownership of the intellectual property represented by that artwork. So the artwork itself is tangible, but the design represented by it is intangible. In the case of writing, it's impossible to sell an initial manuscript or screenplay as it is. Those seem like an intangible assets that have to be produced in order to be tangible in the form of books and films for purchase, viewing or rental in exchange for money. When someone "sells a script," they're not selling the paper it's written on. It seems like the same would be true for the design of a boat, or the artwork used to produce a comic book -- that these are intangible assets until they are realized in their intended tangible form.

Even if the "boat drawing" were just an artwork per se, for example a painting intended for sale as a painting, I think it still represents intangible intellectual property in addition to the tangible form. For example, say my friend is a painter. I buy one of her original paintings for $300. I cannot then go and produce prints of that painting to sell to a mass market. I bought a tangible expression of her intangible asset. I believe I'd have to negotiate separately for the right to the intangible intellectual property represented by the painting, to resell copies.