This section deals with the various intangibles which can be identified as distinct and separate property rights. These assets can be contrasted to others, e.g., goodwill, which by virtue of being specifically unidentifiable, require special accounting considerations.
List of Identifiable Intangible Assets
- Patents: Granted by the Federal government, patents give the owner an exclusive right to manufacture and sell, or otherwise control, a particular invention or discovery for a period of 17 years. At such time, the invention or discovery enters the public domain, and is available for use by others without payment of any royalty or license fees. Patents are not renewable; however, new patents may be obtained on the basis
of improvements in the original invention or discovery. Patents may be amortized over their legal lives; however, since a patent’s economy usefulness is generally less than 17 years, shorter amortization periods are the usual case.
- Copyrights: Unlike patents, copyrights give the owner an exclusive right to a literary or artistic creation for a period of 28 years which is renewable for an additional 28-year period. Rights to copyrighted material may be leased, assigned or sold. In theory, copyright costs should be amortized against total revenues resulting from the copyrighted work. However, since such revenues are difficult to estimate, the amortization period is generally short and in some cases, copyright costs may be written off against the first revenues received.
- Trademarks: These distinctive means of identification, together with symbols, labels and design, represent important property rights to the owner inasmuch as they are forms of advertising having great impact on a product’s reputation and consumer confidence in it. They can be bought and sold in their own right. While developing this particular asset requires great monetary investment, a value is usually not assigned unless there has been a purchase acquisition. Even in such cases, the value is typically written off over a period shorter than the 4O-year limit, or the asset may be carried at a valuation of $1 just to call attention to it in the balance sheet.
- Organization Costs. This category encompasses expenses incurred in the formation of a business (i.e., creative, legal, accounting and incorporation fees, etc.). Since it is assumed that these will be recovered through profitable operations, they are considered an asset rather than a reduction in capital. Theoretically, organization costs are an asset as long as the business continues in existence; however, practical considerations dictate that they be amortized over a relatively short life (typically, five years for income tax purposes) in the balance sheet. Organization costs do not include operating losses in initial years of operation, initial advertising costs, bond discount and issuance costs, etc. Such expenses should be deducted from revenues, classified as deferred charges or deducted from security face value and amortized over the life of the obligation.
- Leaseholds and Leasehold Improvements: A leasehold is a right granted to a lessee (business or individual) for the use of real property owned by a lesser (landlord). Leaseholds cover a specified time period and require the payment of rent. Leasehold improvements are betterment of rented property (i.e., resurfaced lots, building modification, new structures, etc.) effected by the lessee. When the estimated useful life of the improvement exceeds the life of the leasehold, it is amortized over the life of the lease as ownership reverts to the lesser when the lease expires. Otherwise, the useful life of the improvement is used as the amortization basis.
- Deferred Charges: This catch-all category covers significant expenditures expected to benefit future periods, although they do not directly result in assets, intangible or otherwise. Research and development costs, plant rearrangement costs and mineral exploration costs are examples of such charges; they are amortized over their useful lives. Because the term deferred charges does not clearly identify the nature of the asset(s), modern accounting theory discourages its use in favor of more specific account titles.
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