Copyrights and Patents
The accounting subcategory of intangible assets contains several types of assets, including copyrights and patents. A copyright is a legally-protected and exclusive right to the sale and production of literary or artistic materials. Patents are a legally-protected and exclusive right to the use, production, and sale of a product.
When a company purchases a patent or copyright from its owner, it has the option to expense or capitalize the purchase price. A patent or copyright may be capitalized if the price paid is deemed to be materially significant to the company.
If capitalized, the patent or copyright would be classified as an intangible asset and appear on the company’s balance sheet. As is the case with all intangible assets, the purchase price of these balance sheet items is moved to the income statement over time through an amortization expense.
Patents offer protection to their holders for as many as 20 years from the time of application. The amortization period of the asset cannot be longer than the time remaining on the protection granted the patent holder.
A copyright’s protection is for the life of the author plus 70 years. The amortization of a copyright is usually limited to the time over which it is thought to provide revenue to the company.