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Patents
Melissa Mitchell
Accounting 540
Dr. Prevratil
Research Questions
Are research and development cost included with the costs of
patents?
What is the normal life of the patents?
What is the typical cost to go through the whole process of
registering a patent?
How many patents do you register per year?
Statement 142
This statement addresses the financial accounting for acquired goodwill
and other intangible assets and supersedes APB Opinion No 17 Intangible
Assets. It explains how to account for assets that have been acquired
individually, or with a group of other assets, and how they should be
presented on the financial statements. Not included in the explanation
are intangibles acquired through a business combination.
Statement 142 does not treat them as wasting assets as Opinion 17 did.
Instead goodwill and intangible assets that have an indefinite useful life
will not be amortized but rater will be tested annually for impairment.
Assets with a finite useful life will continue to amortized but without the
ceiling.
IAS 36
IAS 36 Impairment of Assets seeks to ensure that an entitys assets are not
carried at more than their recoverable amount. With the exception of goodwill
and certain intangible assets for which the impairment test is required,
companies are required to conduct the impairment test if there is an indication
of a possible loss.
IAS 38
IAS 38 Intangible assets are non-monetary assets which are without
physical substance and identifiable (either being separable or arising
from contractual or other legal rights). Those meeting the relevant
recognition criteria are initially measured at cost, subsequently
measured at cost or using the revaluation model, and amortized on
systematic basis over their useful life, unless the intangible has an
indefinite useful life, in which it is not amortized.
SFAS 2
Accounting for Research and Development
Costs
Requires that R&D be expensed as incurred
and that each years total be disclosed in the
financial statements
IAS 8
Correction of Prior Period Accounting Errors
Prior Period Errors are omissions from, and misstatements in, prior period
financial statements resulting from the failure to use, or the misuse of, reliable
information that was available, or could be reasonably expected to have been
obtained, at the time of preparation of those financial statements.
Accounting Estimates
Preparation of financial statements may involve theuse of accounting
estimatesin determining the carrying amounts of assets & liabilities and the
associated expense or income for the period where such amounts cannot be
measured precisely.
Examples:
Valuation of land where it is accounted for at revalued cost
Impairment of non-current assets
Useful lives of non-current assets
- See more at: http://accounting-simplified.com/standard/ias-8/changes-in-accounting-estimates.html#sthash.H8Ems1I9.dpuf
Patent
Is rights that have been granted by the government to
the inventor for a particular amount of time to stop
others from using, making, or selling the idea for a
limited time
utility and plant patents are granted for a term which
begins with the date of the grant and usually ends 20
after the date it was applied for
The cost of the patent is amortized over the
shorter of its 20-year legal life or its useful life.
Assets
Things a company owns
Current Assets are things a business owns that
are
easy to convert to cash
Non-current Assets are anything not classified as
a
current asset and usually include items such
as plan, property, and intangibles assets
1. Tangible (with physical substance)
2. Intangible (without physical substance).
Intangible Asset
Any asset that does not have any monetary value and are without
physical substance, with a useful life greater than 1 year
Examples of Intangible Assets:
Patent
Copyright
Tradenames
Customer Lists
ASC 350-30-45-1 All intangible assets have to be aggregated and
presented in the financial reports as separate items. However any
individual intangible assets or classes must be presented on a
separate line item
$$$
Patent Cost
Once the patent has been granted only the cost for
registration, and legal fees are included.
Costs of the patent is amortized over its useful life
ASC 350-30-35-3 - The estimate of the useful life of an
intangible asset to an entity shall be based on an analysis
of the following factors; the expected use of the asset, the
expected useful life of another asset or related intangible
asset, and any legal, regulatory, or contractual provisions
that may limit the useful life. The cash flows and useful
lives of intangible assets that are based on legal rights are
constrained by the duration of those legal rights.
Costs to obtain Patent
Patent
96,000
Debit
Credit
Recording Amortization of
Patent
XYZ pays $96,00.00 for the registration and
other legal fees to obtain a patent. Its useful
life is determined to be 8 years. The annual
amortization is 96,000/8=12,000.
Annual Amortization is $12,000
Dec 31 20xx
Debit
Credit
12,000
12,000
Affect on Financial
Statements
Balance Sheet
Income Statement
Patent Expense
Patent
Cash
Amortization Patent (contra
acct)
Impairment Standard
IAS 36 Impairment of Assets seeks to ensure that
an entitys assets are not carried at more than their
recoverable amount. With the exception of goodwill
and certain intangible assets for which the
impairment test is required, companies are required
to conduct the impairment test if there is an
indication of a possible loss.
Impaired Asset
A company's assets that market value is less than the book value.
If there is a loss, it will reduce income in the income statement
and reduce total assets on the balance sheet
Impaired Asset
A company's assets that market value is less
than the book value.
If there is a loss, it will reduce income in the
income statement and reduce total assets on
the balance sheet
Disclosing the circumstances surrounding the
impairment of a long-term asset is a necessary
element in creating a company's income
statement.
Recommendations
The cost you pay to use a trademark, copyright, or obtain a
patent can be amortized.
Amortization will reduce the intangibles assets value on the
balance sheet in equal amounts over its useful life. You will
present the method used and the amount in the financials.
Research and development cost will be expensed. R&D is found
on the income statement as an operating expense. These cost
will not be included in the cost to obtain the patent
Once the Patent is obtained only the cost of registration, and
legal fees are included as the Patent costs
Straight-line method will be used to amortize the patent costs
Impairment testing will done on the patents to determine
useful life if there is a change or advancement in the
technology industry
Correcting Errors
Error of omission
occurs when a transaction has never been
recorded.
corrected by means of a journal entry between
the accounts affected
A change in Accounting Estimate
Shall be recognized in the period of the change
or the period of change and future A change in
accounting estimate shall not be accounted for
by restating or retrospectively adjusting amounts
reported in financial statements of prior periods
Works Cited