The poet said, "Beauty is in the eye of the beholder." What possible application would that soft and lovely expression have in the hard indifferent world of finance? It means a great deal when it comes to the relative worth, or "beauty" of your firm's assets. Another related poetic phrase, though not nearly as engaging is, "One man's trash is another man's treasure."
          We all have assets that are surely treasures to us. They are something beautiful that we hold. The American Heritage Dictionary provides the following definitions for assets: 1. A useful or valuable quality, person, or thing, an advantage or resource; 2. A valuable item that is owned; 3. In accounting, the entries on a balance sheet showing all properties, both tangible and intangible. Assets can include cash, stock, inventories, property rights, and goodwill.
          What are those assets worth? In the very end, after all the GAAPs, SAPs, FASBs, and other variations of accounting rules and statistical analysis, an asset is worth simply this: What did someone pay you for it. This might be a great excuse to introduce the "greater fool" theory, which states that no matter what you have, there's someone who is a greater fool than you are willing to buy it!
          If you own something and really want to know its worth-- sell it. That's the bottom line.
          As we traverse the complex world of finance there are circumstances where we'd like to be able to show someone else what assets we have so that our "worth" might be calculated. The measurement might be made in order to induce additional investment into our firm, obtain a loan against these assets or simply to feel good about how we've spent the better part of our lives.           Whatever the reason, our "assets" are our treasures-to others maybe they're just rubbish.
APB 17 specifically addresses "intangible" assets; that is, things that may produce wonderful results but that cannot be felt, touched, lifted or shipped by truck; such as, the value of intellectual property (one of the most important intangible assets), technology licenses, and other agreements.
          In more elevated terms, Intellectual Property is defined as "original creative works that have economic value." Principal types of intellectual property are patents, copyrights, and trademarks. Other types of intellectual property also include trade secrets (i.e. Coca-Cola soft drink formula) and the right of publicity (i.e., a famous athlete may profit by using his/her name to endorse a product). Intellectual property is similar to an intangible asset because both are intangible in nature. Since intellectual property is similar to an intangible asset, it is often used interchangeably.
          Our accounting standards specifically state, ". . . a company should record as assets the costs of intangible assets acquired from others, including goodwill acquired in a business combination. A company should record as expenses the costs to develop intangible assets that are not specifically identifiable. The Board also concludes that the cost of each type of intangible asset should be amortized by systematic charges to income over the period estimated to be benefited. The period of amortization should not however, exceed forty years."
          What does this very erudite statement really mean? This-- If you acquire an asset, that is (from the definition above) a valuable person, quality or thing, you may record that value at its hard cold cost. Period. For example, if you paid $10 for an invention that would ultimately allow star-trek transport systems actually to work, the asset that would appear on your balance sheet with a value of $10.
          However, if someone gave you that asset (no strings attached and therefore no cost), you would be faced with valuing that asset based upon predicted cash flow profits from that asset.
          As an example, UAL (United Airlines) reported $3,738,000,000 in revenue for the period ended September 30, 2002. Consequently, if your company was given (no cost to you), an asset that replaced air travel and the firm expected to capture only half the market, your balance sheet could be the recipient of a $1,869,000,000 asset!
          Based upon United States accounting policy, that $10 piece of trash on the one hand is, in the twinkling of an eye, poof!-a multi-billion dollar treasure. Needless to say and before the entire accounting profession is up-in-its-arms, there are many more subtleties and complexities that may come into play. Nevertheless, the beauty of an asset remains in the eye of the beholder.           For that reason, be careful what you stare at, you may actually get it!