How do Intangible Assets differ from Goodwill in accounting?

Intangible assets are non-physical assets that have value, such as patents, trademarks, and copyrights. They are typically amortized over their useful life, which is the period over which the asset is expected to contribute to the company's revenue. This systematic reduction of the asset value reflects its consumption and helps match the expense with the revenue it generates.

Goodwill, on the other hand, arises when a company acquires another company for more than the fair value of its identifiable net assets. Goodwill represents the intangible factors contributing to the acquired company's value, such as brand reputation and customer relationships. Unlike other intangible assets, goodwill is not amortized. Instead, it is tested for impairment at least annually, meaning that its value is evaluated to determine if it has decreased, and any drop would be recognized as an expense.

Understanding this distinction emphasizes how intangible assets and goodwill are treated differently in accounting. While both relate to non-physical value, their treatment in financial statements varies significantly based on their nature and the method of cost allocation.