Understanding Intangible Assets and Affiliated Companies

André Gonçalves de Freitas

André Gonçalves de Freitas

Apr 06, 20243 min read

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Understanding Intangible Assets and Affiliated Companies

In the world of business and finance, there are various concepts and terms that can sometimes be confusing. Two such concepts are intangible assets and affiliated companies. Understanding these concepts is crucial for companies to make informed decisions about their financial statements and investments. In this article, we will explore the definitions and implications of intangible assets and affiliated companies, as well as provide actionable advice for businesses.

Intangible Assets: Research and Development

Intangible assets are assets that lack physical substance but have value to the company. These assets can include patents, copyrights, trademarks, and goodwill. However, it is important to note that not all expenditures related to research and development can be recognized as intangible assets.

According to accounting standards, any expenses incurred during research activities or the research phase of an internal project should not be recognized as intangible assets. Instead, these expenses should be recognized as an expense when they are incurred. Examples of research activities include obtaining new knowledge, evaluating and selecting applications for research results, and exploring alternatives for materials, devices, products, processes, systems, or services.

On the other hand, an intangible asset resulting from development (or the development phase of an internal project) should only be recognized if the entity can demonstrate certain aspects. These aspects include technical feasibility, intention to complete and use or sell the asset, ability to use or sell the asset, and how the asset will generate future economic benefits. Additionally, the entity must demonstrate the availability of resources, both technical and financial, to complete the development and use or sell the asset. Furthermore, the entity must be able to reliably measure the expenses attributable to the intangible asset during its development.

It is worth noting that during the development phase of an internal project, an entity may be able to identify an intangible asset and demonstrate its potential for future economic benefits. This is because the development phase is more advanced than the research phase.

Actionable Advice:

1. Carefully evaluate research activities and expenses to ensure they are appropriately recognized as expenses.

2. Conduct thorough market research to demonstrate the existence of a market for the intangible asset or its products.

3. Develop reliable methods for measuring expenses related to the development of intangible assets.

Affiliated Companies: Understanding the Terminology

In the context of business, affiliated companies are often referred to as coligadas or filiadas. An affiliated company is a company in which another company holds at least 10% of the capital without controlling it. On the other hand, a company in which another company holds less than 10% of the capital with voting rights is considered to have a simple participation.

Actionable Advice:

1. Conduct a thorough analysis of the capital structure and voting rights when considering partnerships or investments in affiliated companies.

2. Understand the implications of simple participation versus control in terms of decision-making and financial reporting.

3. Consult with legal and financial experts to ensure compliance with regulations and maximize the benefits of affiliations.

Conclusion

In conclusion, understanding the concepts of intangible assets and affiliated companies is crucial for businesses to make informed decisions and accurately report their financial statements. By recognizing research expenses as expenses and identifying the necessary criteria for recognizing intangible assets resulting from development, companies can ensure proper accounting practices. Additionally, understanding the terminology and implications of affiliated companies can help companies navigate partnerships and investments effectively. By following the actionable advice provided, businesses can enhance their financial management and strategic decision-making processes.

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