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Companies intangible assets are something which is not physical e.g. Patents, copyrights etc. How can we depreciate companies intangible assets and why it is done?

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  • $\begingroup$ What is the difference between amortization and depreciating intangible asset? $\endgroup$
    – Rudra
    Dec 30, 2015 at 5:24
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    $\begingroup$ I'm voting to close this question as off-topic because it's about accounting principles, not economic principles. This could be migrated to Personal Finance & Money $\endgroup$
    – 410 gone
    Dec 30, 2015 at 6:48
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    $\begingroup$ We should hash this out in economics-meta. There are numerous journal of economic literature (JEL) codes concerning accounting and accounting is often a class taught within the economics and business schools so while @EnergyNumber's position has some merit it isn't the only valid position. $\endgroup$
    – BKay
    Dec 30, 2015 at 14:29
  • $\begingroup$ cc @Bkay Currently, Accounting is treated as off-topic in economics.se, economics.stackexchange.com/help/on-topic. But "Business Economics" are "on topic but". It is my impression, that a question like this one falls somewhere in between. $\endgroup$ Dec 30, 2015 at 18:31
  • $\begingroup$ Is this really an accounting question? Or is it on how to calibrate the depreciation rate $\delta$, given that intangible assets are more and more part of production? $\endgroup$
    – FooBar
    Dec 31, 2015 at 12:09

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All assets which have a finite useful life are depreciated. For example, your patents or copyright might hold for 5 or 10 years but no more. Thus, it is quite coherent to reflect the loss of value through depreciation and amortization. Same goes for a software for example: in 5 years time, a software might be obsolete, so we need to reflect this in the financial statements.

However, the intangible assets which do not have a finite useful life (e.g. goodwill) will not be depreciated, though its value can be impaired. A great example was provided last summer by Microsoft.

The way it is done is the very same as for tangible assets.

Under IFRS, the relevant IAS is the IAS 38

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