Acquisition of Intangible Assets

Category

Cash Flow

Units

Currency

US-GAAP elements

PaymentsToAcquireIntangibleAssetsPaymentsToDevelopSoftware

Reference

ASC 230, Statement of Cash Flows (investing activities); ASC 350

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Acquisition of intangible assets is the cash a company paid during a period to obtain assets without physical form, such as patents, trademarks, licenses, broadcast or spectrum rights, customer lists, and software, when they are bought individually rather than as part of a business acquisition. It also commonly includes cash spent developing software for internal use that qualifies for capitalization. It is an outflow in the investing section of the cash flow statement.

Goodwill is excluded. It can arise only when a company acquires an entire business.

Intangible assets acquired on their own are recorded at cost under ASC 350 and, if they have finite lives, amortized over those lives. The XBRL element PaymentsToAcquireIntangibleAssets covers the cash paid for such assets and specifically excludes goodwill. Capitalized internal-use software, governed by ASC 350-40, is often reported separately and tagged PaymentsToDevelopSoftware, which covers development costs that meet the criteria for capitalization rather than being expensed.

The line is small or absent for many industrial companies but can be significant elsewhere. Wireless carriers may spend large amounts on spectrum licenses, pharmaceutical companies make milestone and upfront payments to license drug candidates, and media companies acquire content rights. Classification can vary by company and by type of payment: some content spending is reported in operating activities, and some in-licensed research is expensed as acquired in-process research and development rather than capitalized. Read the accounting policy note before comparing companies.

Many free cash flow calculations, including the standard definition of operating cash flow minus purchases of property and equipment, leave this line out. For companies whose competitive position depends on licenses, software, or acquired intellectual property, excluding it can make free cash flow look stronger than the cash actually available. Analysts often add it to physical capital spending for a fuller measure of reinvestment.