It is still booked as "goodwill"

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Earlier this month, IAM blog highlighted Facebook's recent 10-Q filing with the SEC. The 10-Q showed a huge increase in Facebook's intangible assets on their balance sheet -- growing from $162 million at the end 2011 to $1.423 billion at the end of September 2012. As those of you how follow accounting know, intangibles acquired from outside the company need to be placed on the books. So this increase was due to Facebook's various purchases, including the purchase of Intagram and the patents that Microsoft bought from AOL and then sold to Facebook.

IAM makes a big deal that $633 million of that $1.423 billion was booked by Facebook explicitly as Intellectual Property. But I would turn that around: less than half of the intangible value is in IP and over 40% ($590 million) was booked as goodwill. In the case of Intagram, 83% of the intangibles were booked as goodwill ($435 million out of a total of $521 million).

In other words, patents might be valuable but the amorphous category of "goodwill" is still a large black hole for accounting of intangibles.

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