Where is patent in balance sheet

Finance Books. Operations Books. Articles Topics Index Site Archive. About Contact Environmental Commitment. Bottom-up estimating definition The difference between depreciation Intangible assets are either considered definite or indefinite. An example of an indefinite asset is a brand name since it remains with the company until the company ceases operations.

An example of a definite asset is a legal agreement to use another company's patent for a specified period of time. Although the value of intangible assets is not always as obvious as the value of tangible assets, they still play a significant role in a company's success or failure over time. For example, major brands like Nike benefit from the substantial value of name recognition, an intangible asset.

Even though brand recognition isn't something you can see or touch, it has driven this company's international sales for decades. Intangible assets can be acquired or created by a business. For example, a company can develop its own mailing list of clients or may purchase this list from an external firm; either way, it's an intangible asset. The business also records an expense equal to the amortization rate every accounting period. Privacy Policy. Skip to main content. Controlling and Reporting of Intangible Assets.

Search for:. Types of Intangible Assets. Learning Objectives Summarize how a company would value a trademark. Key Takeaways Key Points As a trademarks are used to identify a specific type of business or service, they are important for businesses that want to protect their branding.

Trademarks are not amortized, but if one loses its value, it can be impaired. Copyrights A copyright is an amortizable, intangible asset that is used to secure the legal right to publish a work of authorship.

Learning Objectives Describe how to value a copyright. Key Takeaways Key Points A work of authorship can include poetry, novels, computer software, movies, plays, songs and architectural drawings. The value of a copyright equals the cost it took to secure the legal copyright on a work the business created, or the price the business paid to purchase the copyright from the original owner.

Every year, the company must amortize the value of the copyright by an amount equal to the original value of the copyright divided by the projected amount of time that the copyright will be able to generate revenue.

Key Terms amortization : The cost distribution of an intangible asset, like an intellectual property right, over the projected useful life of the asset. Copyright : the right by law to be the entity which determines who may publish, copy and distribute a piece of writing, music, picture or other work of authorship. Patents A patent is an amortizable, intangible asset that grants a business the sole right to manufacture and sell an invention. Learning Objectives Explain how a company values a patent.

Key Takeaways Key Points There are three types of patents. A design patent is used for any new, original ornamental design that can be affixed to an item of manufacture. A plant patent is granted to anyone that has invented or created a new plant.

The value of a patent depends on how it was acquired. If the business purchased the patent, its value equals the acquisition cost. The value of the patent must be amortized over its useful life, which can be no longer than 20 years. Learning Objectives Describe how a company values Goodwill. Key Takeaways Key Points A company may only record goodwill on its balance sheet in connection to a business or business segment it acquired. Goodwill is not amortized, but it can be impaired if the present value of the future revenues of the related business segment are less than the net assets including goodwill of the business segment.

Franchises and Licenses Franchises and licenses are intangible assets that legally entitle a business to sell a product or service developed by another entity.

Learning Objectives Explain how a company values a franchise or license. Key Takeaways Key Points If a franchisee makes periodic payments to the franchisor, it does not record a franchise asset. A business only records a license asset on its balance sheet if the term of the license ends after the date of the balance sheet. Amortizing only applies if the business records an asset. Every accounting period, the business decreases the value of the asset by the amortization rate and records an expense equal to the rate.

Key Terms license : the legal terms under which a person is allowed to use a product franchise : The authorization granted by a company to sell or distribute its goods or services in a certain area.

Many assets are easy to value because they are tangible goods, easily bought and sold. But patents are not as straightforward because they are intangible. Calculate the value of a patent on the balance sheet using its development costs or purchase price.

Total the development costs for the patent, including research and development costs and associated legal costs.