Patents are rights granted exclusively to a person or company to produce and sell a particular invention. These rights are granted for 17 years. The costs of the patent should be debited to an asset account and then written off in a systematic manner. Unless another method can be shown to be more appropriate, straight-line amortization should be used.
If the expected useful economic life of the patent is less than 17 years, then the shorter length of time will be used for the amortization process. A contract account (such as accumulated amortization) is usually not utilized with intangibles. Amortization is written off directly to the asset.
Consider a patent that cost $300,000 to develop. It is expected that the economic life of the patent will be ten years. The entry for the first full year of amortization would be shown in diagram. Each succeeding year would have a similar entry recorded. Most intangible assets have a zero residual value.
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