Can costs to register a trademark be Capitalized?
Registered trademarks refer to logos, designs, words, symbols or a combination thereof used by a business to differentiate its products / services or its own identity from others in the market and thus identify the source, quality and attributes related to products or services. Therefore, registered trademarks are assets of a business.
Whether or not registered trademarks can be capitalized (included on the balance sheet) or not is a question many entrepreneurs ask. As a start, in accounting terms when we refer to a trademark being capitalized, that means that it is recorded in the books of accounts (usually under intangible assets in the balance sheet) as an asset which is depreciated over time. The Financial Accounting Standards Board (FASB) rules, which are a part of the generally accepted accounting principles in the United States, govern the accounting treatment of trademark costs, and allow for the capitalization of trademarks. The actual treatment of trademark costs however depends upon several factors like:
- The method used for developing the trademark (was the trademark acquired, or developed?
- The useful life of the trademark,
- The fluctuations in its fair market value.
One quick way for startups to capitalize their trademarks is to allocate the costs incurred to register a trademark as an intangible asset. Usually, intangible assets are amortized over a period of their expected useful life. However, as trademarks are expected to retain their value forever, trademarks are not amortized. With that said, a company needs to reassess the value of its trademarks annually in case any of the value was impaired due to a brand crisis or otherwise. If the value of a company’s trademark has impaired, compared to prior years, then an impairment loss should be recorded to readjust the value on the balance sheet to be reflective of the fair market value of the trademark