On just about any company's balance sheet, somewhere between the 'Current Assets' and 'Current Liabilities' sections is a collection of long-lived, revenue-producing assets broken up into two categories - 'Property, Plant, and Equipment' (PP&E) and 'Intangible Assets'. PP&E often contains such non-current assets as land and buildings, motor vehicles, office equipment, computers, and plant and machinery. Intangible Assets is a much broader category including anything from copyrights and patents to trade secrets, customer lists/leads, noncompetition agreements, franchises, and goodwill.
The accounting methods for PP&E is very similar to those of Current Assets, though there are significant ...view middle of the document...
Innovators who develop an idea that is completely revolutionary have a much more difficult time valuing an intangible asset (although, that risk is counterbalanced by the greater chance for a hefty reward). A company that purchases intangible assets records them at its original cost, which, according to the text, “includes its purchase price and all other costs necessary to bring it to condition and location for intended use,” (Spiceland). That can include legal, regulatory, and filing fees.
The most common intangible assets are patents, trademarks, and copyrights.
A patent is an exclusive right to manufacture a product or to use a process, granted by the U.S. Patent Office, for a period of twenty years (Spiceland). The point of patents (and all intellectual property) is to promote creativity and innovation – companies want to develop new products or procedures in-house because it could lead to future growth, independent inventors aim to come up with new ideas to sell to other users. There are four primary reasons that patents play such an integral role in the economy, and why they are so well protected - to invent in the first place, to disclose the invention once made, to invest the sums necessary to experiment, produce and market the invention, and to improve on earlier patents. Because of the precedence patents are given (as they can make or break a company) protecting patents can be a costly endeavor.
According to the Spiceland text, “when a patent is developed internally, the research and development cost of doing so are expensed as incurred,” and, “any attorney fees and other costs of successfully defending a patent are added to the patent account.” The ‘Patent’ account is amortized over the known life of twenty years. Patents grant the holder a right to exclude others from manufacturing and distributing an invention, not exclusive practicing rights for the invention. After the life of the patent, the product is fair game for competitors.
Trademarks grant the holder exclusivity to the use and display of a word, slogan, or an emblem that “distinctively identifies a company, a product, or a service,” (Spiceland). What sets trademarks apart from some of the other intangible assets is that, unlike the defined twenty-year period for patents, trademarks can be renewed at the end of its ten-year period (meaning it has an almost-indefinite...