A patent is a legal right granted by the government to an inventor, giving them exclusive rights to make, use, and sell their invention for a specific period of time. Patents are considered intangible assets because they do not have a physical form but provide economic benefits.
5 Must Know Facts For Your Next Test
Patents are classified as intangible assets on the balance sheet.
The cost of obtaining a patent can be capitalized and amortized over its useful life.
Patents typically have a legal life of 20 years from the filing date.
Amortization of patents is recorded as an expense on the income statement.
Legal fees and other costs associated with defending a patent can also be capitalized.
Review Questions
What type of asset is a patent classified as?
How long is the legal life of a typical patent?
How are the costs associated with obtaining and defending a patent treated in financial accounting?
Related terms
Intangible Assets: Assets that lack physical substance but provide economic value, such as patents, copyrights, and trademarks.
Amortization: The process of gradually writing off the initial cost of an intangible asset over its useful life.
Trademark: A recognizable sign, design, or expression which identifies products or services of a particular source and distinguishes them from others.