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Home > Business & Careers > Accounting   »   Patents in accounting

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Old Feb 11, 2007, 10:52 AM
vaemt
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Patents in accounting
I need help again!

I have to create a income statement, owners equity & balance sheet but I am stuck on one thing. Is a patent an asset or expense? All it says is patent and gives an amount on my example. No explanation nothing .... I know that you have to pay for a patent but you can also make money on a patent as well (or am I wrong). If anyone knows which category I should place this in I would be ever grateful and I hope to grasp these concepts soon ... does anyone also know of an online tutor for accounting? I am getting desperate for help and I am taking my accounting class through distance education which means no classroom time ... thanks for all the help with both questions!

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Old Feb 11, 2007, 11:51 AM   #2  
vaemt
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Also I just noticed that I did not post this one under homework help! I am SOOOO very sorry for not posting it in the correct place I will do better next time! Sorry again and please if anyone can answer my questions I will be very grateful and sorry again for posting in the wrong place!
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Old Feb 11, 2007, 12:01 PM   #3  
CaptainForest
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Hello Vaemt,

A patent is an intangible asset.

When you buy it, the JE is:
Dr. Patent
Cr. Cash

At the end of the year, you also have to check if the value of the patent has gone down and whether you have to write it down or not.
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Old Feb 11, 2007, 07:37 PM   #4  
KongTheKonqueror
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Wouldn't you amortize or depreciate the total cost of the patent over the life of the patent since they have a limited life?
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Old Feb 13, 2007, 08:06 PM   #5  
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If the patent (or any intangible asset) has a limited life, you do amortize it over its life, plus you check for impairment when events/circumstances indicate there might be an impairment.

If the intangible asset has an unlimited life, there is no amortization, but you must test for impairment every year.

Since patent’s do have limited lives, you are right Kong, is should be amortized over its life.
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Old Mar 14, 2008, 03:38 AM   #6  
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I have a further question on the same subject. If an patent is sold to another company for a token amount, say $1 but the patent is actually worth a lot more, say $1,000,000. What would the entry be?

Dr. Intangible Asset $1,000,000
Cr. Cash $1
Cr. ? $999,999

Would the extra amount be taken to equity or a revaluation reserve?
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