What are Intellectual Property Rights?
Intellectual property rights are the rights given to the creator over his/her invention by providing exclusive rights to use them for a certain period of time.
Types of IPR consists of:
- Copyright rights
- Industrial design
- Trade Secret
- Layout for integrated design
- Protection of new plant variety
Why to show patents in accounting?
The potential of revenue generation from IP is growing around the world and because of this accounting need to consider these intangible assets while making a balance sheet. But the problem of valuing these IP is a problem because there is no proper defined method to value them and also there is a gap between economic framework of accounting and legal framework of IPR. This leads to disparity in the between what companies shows in balance sheet and what they actually own.
Examples of company showing IPR as their intangible assets:
- Walt Disney- Copyright and trademark valued at $4273 million and accounts for 6% of the total assets.
- Microsoft- Technology based IPR worth around $3038 million and accounts for 2% of the total assets.
Patents are classified as long-term assets. Because they have extended life and not indefinite life. Companies generally cannot place internally developed assets in accounting sheets unless they buy it and should have an objectively determinable value.
To know more about accounting for intangible asset and regulation around it click on the link: