Accounting for Trademark
Trademark is the intellectual property which gives the right to the owner to own the exclusive right over unique words, phrase or symbol that represent the goods, service or the entity. The owner needs to register the trademark with the government to own it. The trademark can be transferred from one owner to another.
The cost of register or acquire a trademark is capitalized as an asset in the company balance sheet. It is classified as an intangible asset as its lacks physical substance.
Trademark will become a brand when the goods and services are well-known to the customers as well as the market. It will help the business to grow and differentiate from the competitor. It will be a competitive advantage for the existing brand that is the market leader. Trademark will become a shield that protects the owner from the copycat.
The company can create a trademark by register with the United States Patent and Trademark Office or similar government departments in other countries. The registration fee will be capitalized into intangible assets. Moreover, company can acquire a trademark by purchase it from another company which can be very expensive depending on the value of the brand.
Company ABC has registered the trademark for its new product, it cost $ 50,000 for the registration and legal fee. The company spends $ 30,000 to do a marketing campaign to promote the product.
The company can capitalize only $ 50,000 while the marketing campaign needs to record as a marketing expense.
- Capitalized Trademark
- Record Marketing Expense
Amortize of Trademark
Trademark is an intangible asset, so we must amortize the asset over its useful life. Base on US law, a trademark is renewed every 10 years, so if the company decides to continue, it will last forever.
However, management needs to estimate the useful life which depends on the following:
- Commitment to use and renew the trademark
- The restriction of legal issues on exclusive use
- Technology obsolete
The journal entry for the amortization as following: