Firms and individuals spend significantly more on tangible assets due to the belief that they are more stable in value than intangible assets. For instance, during tough global financial times, most investors seek tangible assets as they regarded a safe haven in a faltering economic system. However, intangible assets with examples of knowledge, brand culture, software, and the likes are critical parts of a functioning hotel business.
The valuation of intangible assets varies depending on whether a hotel purchases it or generates it internally according to the FASB Codification section related to intangible assets (§350) . When purchased, the company will record it at a cost that includes acquiring the asset plus the expenditures incurred in getting the asset ready for use (Kieso et al., 2011). Assigning value for an internally created intangible asset is more complex. This is because a significant amount of costs is incurred in generating the asset. However, the FASB Codification section related to intangible assets (§350) contends that the capitalization of intangible assets should be due to direct costs incurred in creating them.
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The appropriateness of the above methods as far as the hotel industry is concerned is the idea of expensing costs. Assigning a value to an intangible asset is a complicated task, especially if it is internally generated. Some accounting experts argue that it is extremely difficult to associate such assets with internal costs (Kies et al., 2011). It is a more uniform as well as a conservative approach to obtaining a more accurate value of an intangible asset.
Intangible assets are those that lack physical existence and thus not considered a financial instrument. Because of this, the treatment of intangible assets remains a challenge for the majority of firms. Although the treatment is more straightforward for purchased assets, those created by an organization are overly complicated. However, accounting experts recommend expensing costs in these assets. For instance, the cost that goes into R&D, legal fees, and others.
References
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2011). Intermediate Accounting, Problem Solving Survival Guide (Vol. 1). John Wiley & Sons.
