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Definition
The accounting subcategory of intangible assets contains several types of assets, including copyrights and patents. A copyright is a legally-protected and exclusive right to the sale and production of literary or artistic materials. Patents are a legally-protected and exclusive right to the use, production, and sale of a product.
Explanation
When a company purchases a patent or copyright from its owner, it has the option to expense or capitalize the purchase price. A patent or copyright may be capitalized if the price paid is deemed to be materially significant to the company.
If capitalized, the patent or copyright would be classified as an intangible asset and appear on the company's balance sheet. As is the case with all intangible assets, the purchase price of these balance sheet items is moved to the income statement over time through an amortization expense.
Patents offer protection to their holders for as many as 20 years from the time of application. The amortization period of the asset cannot be longer than the time remaining on the protection granted the patent holder.
A copyright's protection is for the life of the author plus 70 years. The amortization of a copyright is usually limited to the time over which it is thought to provide revenue to the company.
Related Terms
The financial accounting term intangible asset is used to describe those assets that lack physical structure (they cannot be seen or measured), and have a high degree of uncertainty surrounding future benefits to be derived from them. The most common types of intangible assets appearing on the balance sheet are goodwill, copyrights, trademarks, patents, franchises, and organization costs.
Moneyzine EditorJanuary 22nd, 2024- The accounting subcategory of intangible assets contains several types of assets, including trademarks and franchises. A franchise is a legally or company-protected and exclusive right to conduct a specific type of business in a pre-defined geography. A trademark can be a design, symbol or a word that identifies a product or group of products.Moneyzine EditorSeptember 21st, 2023
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.Moneyzine EditorJanuary 8th, 2024
The financial accounting term goodwill refers to the present value of earnings that are in excess of normal profitability for a particular industry. Goodwill is commonly recorded when a business is acquired and the price paid is in excess of the book value of the company.Moneyzine EditorJanuary 19th, 2024
The accounting term used to describe the expiration of intangible assets such as patents or goodwill is amortization. As is the case with the depreciation of a tangible asset, the amortization of an intangible asset is shown on the income statement as an expense of the company; thereby reducing net income over the years this benefit is realized.Moneyzine EditorJanuary 5th, 2024
