Question

Why does the accounting profession make a distinction between internally created intangibles and purchased intangibles?

Short answer

Internally created intangibles would lead to subjectivity, and Purchased intangibles are capitalized since their cost can be objectively confirmed.

Step-by-step solution

When intangibles are generated internally

Determining the authenticity of any future service potential might be challenging. Allowing these expenditures to be postponed would lead to a lot of subjectivity because management might claim that practically any item could be capitalized on if it would improve future benefits.

Purchased intangibles

On the other hand, these are capitalized since their cost can be objectively confirmed and reflects their fair worth at the time of purchase.