source : bizfluent.com
Where Are Patents Classified on the Balance Sheet?
A patent is a property right that gives the patent holder exclusive rights to use an invention, design, process or other intellectual property. The United States Patent and Trademark Office reviews patent applications and grants patents, which give individuals or companies effective monopoly rights for a limited number of years. Patents go in the intangible assets subsection of the classified balance sheet.
Intangible assets are part of the long-term assets section on the balance sheet. Intangibles include patents, copyrights, trademarks, franchise licenses, goodwill and other nonphysical items that do not have a readily available market value. However, companies use intangible assets to generate long-term economic benefits. For example, a semiconductor company may license its patents to manufacturers, thus generating a steady cash flow stream for the life of the patents. Intangible assets are long-term assets because companies use them for long periods and they are not easily convertible to cash.
The accounting process for patents is similar to other fixed assets. Companies allocate or amortize the costs over the life of the patent. Patent costs include registration, documentation and legal fees for defending the patents against unauthorized use. Research and development costs are not part of patent costs because they are part of operating expenses. Companies must use the straight-line method to amortize patents and other intangible assets, in which the amortization expense is the same each year. For example, if a company acquires a 15-year patent for 1 million, the annual straight-line amortization expense is about ,000.
Companies debit amortization expense and credit accumulated amortization to record the amortization of patent costs. Accumulated patent amortization is a contra account that reduces the value of patents in the intangible assets section on the balance sheet. Continuing with the example, the book value of the patent after one year is 3,000 (1 million – ,000). Companies may record the amortization directly to the patent account instead of using a separate contra account, in which case it would debit the amortization expense account and credit the patent account.
Patent valuation may part of a due diligence process for a business sale or merger. In a November 2004 article, certified public accountant J. Timothy Cromley suggests a multi-step process for valuing patents. These steps include verifying if the patent is still in force, reading the patent application documentation and estimating the present value of future cash flow streams from the patent.
Debits increase asset accounts, such as patents, and expense accounts, such as amortization expense. Debits decrease revenue, liability and shareholders’ equity accounts. Credits decrease asset and expense accounts, and increase revenue, liability and shareholders’ equity accounts. Credits also increase contra asset accounts, such as accumulated depreciation and accumulated amortization, which reduce the book value of tangible and intangible assets, respectively.
Patent Impairment on the Balance Sheet | Small Business – Chron.com – When the carrying balance of the patent is more than what it could be sold for in the current market and is not recoverable, its value must be decreased. This reduces the trademark's value on the balance sheet and records the expense on the income statement, which reduces your reported profit.Patents and copyrights are classified as on the Balance Sheet A . Fixed assets B . Intangible assets C. Current assets D.classified balance sheet vs balance sheet. Illustration 2: Example of classifications on the balance sheet (vertical). The net amount (Fixed Assets – Accumulated Depreciation) is shown on the balance sheet. Intangible assets may include patents, goodwill, technology, customer lists, value of…
[Solved] Patents and copyrights are classified as on the Balance… – A balance sheet gives a statement of a business's assets, liabilities and shareholders equity at a specific point in time. Long-term securities: Investments that can't be sold within one year. Intangible assets: Assets that aren't physical objects, such as copyrights, franchise agreements and patents.The balance sheet is divided into two parts that, based on the following equation, must equal each other or balance each other out. Non-current assets also can be intangible assets, such as goodwill, patents or copyright. While these assets are not physical in nature, they are often the resources that…A balance sheet, along with an income statement and cash flow statement, is an integral part of your financial reporting. Usually, assets on the balance sheet are divided into two categories: current assets and Intangible property, including copyrights, patents, and trademarks, as well as goodwill.
How to prepare a classified balance sheet – Classified Balance Sheet is often use by companies to improve users' understanding of a company's financial position. Financial Statements of the company show its financial health, position and its operational activities. Balance Sheet is a principal financial statement which shows the financial…A classified balance sheet is a financial statement with classifications like current assets and liabilities, long-term liabilities and other things. By organizing the information into categories, it can be easier to read and extract the information you need than if it was simply listed in a large number of line…The balance sheet reveals the assets, liabilities, and equity of a company. In examining a balance sheet, always be mindful that all components listed in a balance Intangible Assets lack physical existence, and include items like purchased patents and copyrights, "goodwill" (the amount by which…