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Amortize or Expense a Trademark?

Tom Sheppard's Profile

accounting for trademarksThis isn't a question I have had to deal with n few years and it seems to have changed, I am working with an early stage consumer products company, that has established a brand for themselves in their industry. In reviewing their books they are amortizing their trademark over 5 years. I have talked to some CFO's who are expensing it upfront, while I see some consumer product companies don't amortize or expense, using ASC-350. Since they are in the consumer market, it is fair to say they will have future trademarks as well. I am looking for guidance on best practices here, since there doesn't seem to be agreement on the treatment.

Answers

Anonymous
(Consultant) |

I'm not a professional accountant. That said, I'm curious about the apparent death of the notion that matching revenue and expense is critical to the accurate determination of profitability. Thus, your question is really, "how long will this trademark influence buyer behavior in the marketplace?". "Tide" will probably last several more lifetimes; "Intel Inside" something less: "Kodachrome" ought to be fully amortized by now. In short, it's a judgement call and if a conference room full of CPAs wants to debate the issue, good for them. Make the call, include a footnote explaining your reasoning and move on.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Tom,

ASC-350 I've only applied to acquired marks, where you need to do a PPA and allocate the surplus. If that is the case, I would hold onto it and test it for impairment.

If it is a tax question, I believe it runs as a section 197 intangible and you amortize it over 15 years.

If you've developed the mark yourself...in my first start-up I bent over backwards to capitalize (and hold pending impairment) these costs. This would have been before my first accounting classes (so a very, very long time ago). Now I expense it all, for the following reasons: 1) Nobody wants to see it in your financials. 2)It is incredibly difficult to decide which expenses were Marketing Expense and which were truly applicable to the value of the mark. 3) It creates work.

The 5 year amortization I don't get...my understanding is that your choices are 15 years for tax and impairment for financial reporting. For example, if I acquired the IBM mark for $1m, that would stay on my books until the test showed that it was worth less than $1M...amortizing it wouldn't make any sense at all.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

There really is no wrong answer for your non-question, but it creates confusion. Accounting is very direct about what you can and can't do, but not in this situation. You can choose whatever approach is better for your situation. Just be consistent, i.e. whatever decision you make you will need to stick with. Simply stated your choices are as follows --

Option 1 - Capitalize vs Expense will result in higher profits, resulting in higher taxes; and,
Option 2 - Expense vs Capitalize will allow you to take the loss today, resulting in lower taxes today.

Valuation will be higher by capitalizing - which you may want if you are looking for bank financing. But you also add a bunch of entries if you capitalize, i.e. depreciation every month vs one and done.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Observation: Bank financing on IP can be either a) flaky, in other words, it depends on the bank, the banker and the week or b) very expensive why you try to get appraisals trying to prove its value.

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