Which of the following is the proper accounting treatment for a purchased patent? A purchased patent must be expensed A purchased patent must be capitalized and expensed each year to the extent that the value has declined A purchased patent must be capitalized and amortized over 20 years or less.
Full Answer
What is the accounting for a patent?
As such, the accounting for a patent is the same as for any other intangible fixed asset, which is: Initial recordation. Record the cost to acquire the patent as the initial asset cost. If a company files for a patent application, this cost will include the registration, documentation, and other legal fees associated with the application.
What is the initial asset cost of a patent?
Record the cost to acquire the patent as the initial asset cost. If a company files for a patent application, this cost will include the registration, documentation, and other legal fees associated with the application. If the company instead bought a patent from another party, the purchase price is the initial asset cost. Amortization.
Is a patent an asset or liability?
A patent is considered an intangible asset; this is because a patent does not have physical substance, and provides long-term value to the owning entity. As such, the accounting for a patent is the same as for any other intangible fixed asset, which is:
How do you derecognize patent assets?
Once the company is no longer making use of the patented idea, the asset can be derecognized by crediting the balance in the patent asset account and debiting the balance in the accumulated amortization account. If the asset has not been fully amortized at the time of derecognition, then any remaining unamortized balance must be recorded as a loss.
How to account for patents?
How to account for a patent. A patent is considered an intangible asset; this is because a patent does not have physical substance, and provides long-term value to the owning entity. As such, the accounting for a patent is the same as for any other intangible fixed asset, which is: Initial recordation. Record the cost to acquire the patent as the ...
What is the amortization method for patents?
Amortization. The owner of the patent gradually charges the cost of the patent to expense over the useful life of the patent, usually using the straight-line amortization method. Impairment. If a patent no longer provides value, or a reduced level of value, recognize an impairment to reduce or eliminate the carrying amount of the asset.
Do patents have to be recorded as assets?
In many larger companies with higher capitalization limits, this means that patents are rarely recorded as assets unless they have been purchased from other entities for significant amounts of money.
Can a patent be amortized?
A patent asset should not be amortized for longer than the lifespan of the protection afforded by the patent. If the expected useful life of the patent is even shorter, use the useful life for amortization purposes. Thus, the shorter of a patent's useful life and its legal life should be used for the amortization period.
