Intangible asset

“ Perhaps no harm is done in pursuing a more liberal policy, if such expenses are carried under a proper title, if they are not used to inflate the value of the tangible assets, and if the caution stated above is observed as to the need for investigating the values of all intangible asset items. Certainly organization expense should never be used as a cloak for discount on stocks or other securities marketed. ”

“ Because the assets of this group are intangible is no reason in itself for the hasty judgment frequently made that therefore they are worthless. It is true, as above stated, that the doubtful uses to which they may be put have caused them to be viewed with suspicion. Yet they have an entirely legitimate use and oftentimes constitute the most valuable portion of the assets. Therefore, the values at which these intangible assets are carried on the books should always be open to investigation and capable of verification. ”

“ When property rights fall into definite shape and the price system comes in, and more particularly when the practice of investment arises and business enterprise comes into vogue, such differential advantages take on something of the character of intangible assets. ”

“ The prevalent custom is to pay for the net assets in preferred stock and to issue common stock for good-will. Often, however, bonds are used to pay for the tangible assets; preferred stock is issued for the intangible assets; and common stock represents the additional profits that are expected to accrue to the corporation through the consolidation or merger. The issue of bonds to cover all the tangible assets is generally a dangerous procedure because of the high fixed charges resulting therefrom—though advantageous when the difference between the fixed charges and the net earnings is large. ”

“ Such goods, material items of wealth, are "assets" to the amount of their capitalisable value, which may be more or less closely related to their industrial serviceability as productive goods. "Intangible assets" are immaterial items of wealth, immaterial facts owned, valued, and capitalised on an appraisement of the gain to be derived from their possession. ”

“ The difference between the market value of corporate securities and the physical property owned by the company is ascribable to intangible wealth, which may be a reflection of organization and experience, maybe of good will, maybe of patent rights. If the aggregate market value of a stock be less than the cost or reproduction value of the physical property the chances are that the usefulness of a portion of the latter has disappeared and consequently that some physical value has been extinguished. ”

“ It matters not in what this intangible property consists,-whether privileges, corporate franchises, contracts, or obligations. It is enough that it is property which, though intangible, exists, which has value, produces income, and passes current in the markets of the world. ”

“ This is why the prices of assets are not anchored - they are only loosely connected to their production costs or even to their replacement value. Asset bubbles are not the exclusive domain of stock exchanges and shares. "Real" assets include land and the property built on it, machinery, and other tangibles. "Financial" assets include anything that stores value and can serve as means of exchange - from cash to securities. ”

“ If the property is not earning a sufficient sum to pay its operating expenses, and taxes, and to set aside a fund to cover depreciation and obsolescence, there is clearly no intangible value of any sort to be added to the physical value. If, however, after all these charges are taken care of, there is a net earning which is large enough to pay 4 or 5% on the physical property and still leave a surplus, is it not perfectly reasonable and proper to hold that this surplus represents earnings on all intangible elements of value? ”

“ The effect of such a policy, if operated without check, is to create what is known as a “secret reserve.” The value of the asset is charged more rapidly against operation than the asset actually wastes. Hence the books show a reserve sufficient to cover the cost of asset while there are still values remaining in the asset. In other words, the business possesses an asset of value which is carried on the books as of no value. Were the real present value of the asset brought on the books, the contra credit would appear in some surplus or profits reserved account. ”

“ Assets are personal or real, the former comprising all goods, chattels, &c., devolving upon the executor as saleable to discharge debts and legacies. In commerce and bankruptcy the term is often used as the antithesis of 'liabilities', to designate the stock in trade and entire property of an individual or an association.—Intangible (or fictitious) assets are those not represented by any existing value, e.g. ”

“ Just as it is a misfortune to be born under some conditions, so here it would be a misfortune to a commodity to be produced during the latter years of the service life of an asset. The life-period of an asset must be viewed as a whole and its total depreciation should be distributed evenly over its output, if equity is to be secured—other conditions, of course, remaining the same. ”

“ If the sinking fund reserve is charged against current profit and loss instead of surplus, the showing of net profits is thus corrected but there has been no real reservation of profits, the sinking fund reserve being in reality a valuation account for the depreciating asset, and thus the letter of the trust agreement is violated. ”

“ And the promise to pay interest or rent, or the expectancy of dividends upon stock, the amount of such payments, the past and prospective regularity of the payments, and other elements bearing upon the expectation of the receipt of income affect the value of any income producing property. But these elements are not separately valued in appraising the worth of the asset at any given time. It is the uniform practice to value the asset as an entirety, taking into consideration all the elements that go to give it value in the market. ”

“ The mean true net earnings are used in determining the intangible value, because franchises have average values, as earnings and expenses fluctuate in corporations, and, when intangible values are to be considered, they must not be based on the last year's net earnings, for if they are, they may give a very large result in one year and a small one in the next; therefore, to be fair, the mean true net earnings should be the basis of the intangible value. If the company has been over-capitalized, and no sinking fund or depreciation has been set aside, it is the present owner's misfortune. ”

“ There has never been any estimate of the national wealth that includes the intangible. The aggregate value of the securities of our industrial corporations must logically be in excess of estimates of their physical property. ”

“ There is nothing inherent in the declining balance system which requires us to assume that depreciation should be allowed beyond what reasonably appears to be the price that will be received when the asset is retired. ”

“ Such unissued stocks or bonds manifestly represent an inflation of asset values, offset, it is true, by an equal inflation of capital stock. In the first place, conceding for the sake of argument that the inclusion of unissued stocks among the assets is legitimate, the principle of equilibrium requires that they be valued at par on the balance sheet, a figure which is not cost and which may be very far from market. ”

“ We have taken active and prudent steps to deleverage, control the scale of debts, and expand equity finance. The debt-to-asset ratio of industrial enterprises has been consistently declining. Macro leverage ratio is increasing by much smaller margins and is generally stable. ”

“ The stock and the indebtedness represent the property. As said by Mr. Justice Miller in State Railroad Tax Cases, 92 U.S. 575, 605, 'When you have ascertained the current cash value of the whole funded debt, and the current cash value of the entire number of shares, you have, by the action of those who, above all others, can best estimate it, ascertained the true value of the road, all its property, its capital stock, and its franchises; for these are all represented by the value of its bonded debt and of the shares of its capital stock. ”

“ To ignore this intangible property, or to hold that it is not subject to taxation at its accepted value, is to eliminate from the reach of the taxing power a large portion of the wealth of the country. Now, whenever separate articles of tangible property are joined together, not simply by a unity of ownership, but in a unity of use, there is not infrequently developed a property, intangible though it may be, which in value exceeds the aggregate of the value of the separate pieces of tangible property. ”

“ They act herd-like in conformity with "lending trends". They shift assets to garner the highest yields in the shortest possible period of time. In this respect, they are not very different from investors in pyramid investment schemes. II. Case Study - The Savings and Loans Associations Bailout Also published by United Press International (UPI) Asset bubbles - in the stock exchange, in the real estate or the commodity markets - invariably burst and often lead to banking crises. ”

“ All the other securities of a bank, such as its discounts, personal property and real estate, may become of no value, or may be placed out of reach of the holders of its circulation, so that the only real security for its circulation is what it may have in gold in its vaults. ”

“ The values of railway securities, for example, depend upon the management of the companies issuing them, the directors of which may use their power to increase, diminish, or even extinguish them, while they make gains for themselves by operations on the Exchange. They may advance the price of a stock by an unexpected dividend, or depress it by passing an expected one. They may water a stock by issuing new shares, with no proportionate addition to the productive assets of the company, or load it with indebtedness, putting an unexpected lien on the shareholders’ property. ”

“ If a different course were pursued the only method of providing for replacement of property which has ceased to be useful would be the investment of new capital and the issue of new bonds or stock.... If, however, a company fails to perform this plain duty and to exact sufficient returns to keep the investment unimpaired, whether this is the result of unwarranted dividends upon over issues of securities, or of omission to exact proper prices for the output, the fault is its own. ”

“ This becomes necessary because of the fact that items which do not belong in full to the holding company have been incorporated with the assets on the consolidated balance sheet. It is seldom if ever feasible to attempt a separation of the various asset items on the basis of the degree of ownership of the holding company; hence, the only offset to the inclusion of asset values not belonging to the holding company is by showing the outside interest in those assets by means of the minority holdings of capital stock. ”

“ Driven to a legal concept for a definition of credit, we were obliged to exclude stocks from our rough definition. But corporate organization does precisely what the various other transactions that we have called credit transactions do. Lands and buildings and machinery, or the roadbed and rolling stock of a railroad, are highly specialized, often unfit for use in any form other than that in which they now appear. As concrete instruments of production, they would be highly unsaleable. In their totality, as a going concern, they are highly unsaleable, because in the aggregate so very valuable. ”

“ As large investments are often made in real estate, machinery, and other property not readily salable, the necessity has become evident that the trading capital of a society should consist in transferable shares—like those of a joint-stock company—while the deposit capital can only be withdrawable at call. ”

“ If an asset is held until it is physically exhausted, both methods produce exactly the same result. Similarly, both methods can result in inaccuracies if predictions of useful life and salvage value turn out to be wrong. The Government, however, contends that where it can be predicted with reasonable certainty that an asset will be disposed of before the end of its physical life, its method of depreciation is more likely to reflect the true cost of the asset to the particular business. ”

“ The erroneousness of this impression is shown by the stock transfer books of every large railway and industrial corporation, in which the small holders of small means are very numerous, running up to several or many thousands in each corporation, and reaching a very large aggregate of shares. The small investors thus suffer by depreciation with the large ones, and even the people of small means with only savings bank deposits are, as we can all see, menaced through their dividends by the depreciation of the securities held for investment by the savings banks. ”

“ It would be manifestly impossible for the enactment of rules or regulations suitable to every case, and, in conclusion, we would say that it is almost unknown for an institution, bank, or trust company, to lose money upon any loans made on margins to members of the Stock Exchange in good standing. ”

“ Certainly the FHLB stock is an asset and its acquisition is capital in nature. The complementary § 404 (d) payment is directed to a fund. Each is a device designed to achieve a particular and common result, namely, the providing of protection to the insured institution and to its depositors by way, in the one case, of liquidity and availability of loan funds and, in the other, by way of segregated amounts available to offset possible losses. Each is more permanent than temporary. Each partakes more of the character of an asset than of an expense. ”