Everything you need to know about the Trademark Accounting

The accounting treatment of costs related to creating a trademark in a company's books of account is known as trademark accounting. It also entails evaluating the financial worth to incorporate it into the company's balance sheet and other financial reports.

How to Capitalize a Trademark for Accounting?

Trademarks are logos, designs, and symbols registered and used by a corporation to identify its products or its own identity from those of others on the market. A service mark is a mark that is like a trademark for services. While on the other hand, a trademark can cover both products and services. A well-known trademark among customers is referred to as a brand.

Trademarks are a company's assets. On the balance sheet, they are categorized as intangible assets. For accounting reasons, a trademark is capitalized, which means it is recorded as an asset in the books of accounts via a journal entry.

The accounting treatment of trademark expenses is governed by the Financial Accounting Standards Board (FASB) standards, part of the generally accepted accounting principles in the United States. The handling of trademark costs in the company's financial reporting is determined by several factors, including the process used to create the property, the trademark's useful life, and changes in its fair market value.

Registration of new Trademark:

• Only the payments directly linked with registering a new trademark should be capitalized.
• Both registration and legal expenses can be capitalized.
• You can also capitalize the legal expenditures connected with your trademark registration if challenged in court.
• The costs of marketing and promoting your trademark cannot be capitalized. Even though these costs improve the value of your brand, they are classified as operating expenditures and are thus excluded from the balance sheet.
• Instead of relying on the book value, you should conduct an independent valuation of your trademark for sale.

Buying a Trademark:

• Whether bought individually or in conjunction with a business, a trademark has a reasonable market value.
• The trademark is often valued by a third party, who decides the property's market price.
• A trademark's remaining life has an impact on its market value. A brand has a 10-year life span from the date of registration.
• To keep a trademark registration alive, you must renew it every ten years. If a renewal application is not filed by the deadline, the trademark will be revoked, and its value will be diminished.