This agreement is used when a Licensor has made certain new and useful innovations. The agreement gives the Licensee a license to exploit these new and useful innovations in the marketplace and make a profit from them.
Accounting For Patent License Agreement
State:
Multi-State
Control #:
US-CP5B11
Format:
Word;
PDF;
Rich Text
Instant download
Description
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FAQ
Account for stepped royalty agreements.It is recorded in the ledger as a debit to royalty expense and a credit to accrued royalties (assuming the royalties are to be paid at the end of the period). For example, an author might receive $1 per book for the first 10,000 sold, then $1.50 per book for any sales after that.
The fees that the business paid for those licenses are included as an expense. If the license is for multiple years or accounting periods and is acquired by paying an initial fee, the license is recorded as an asset on the balance sheet and its value equals what it cost to acquire the license.
Debit the patent's total cost to the patent account in a journal entry in your accounting records when you acquire the patent. A debit increases the patent account, which is an asset on the balance sheet. The cost includes the purchase price plus any legal or other fees necessary to use the patent.
A patent is an intangible asset to a company. Patents are similar to goodwill or natural resource rights. They are not expensed when bought; instead they are amortized of the useful life, which is 20 years.
When a patent is acquired, Generally Accepted Accounting Procedures requires that it be included on the business's balance sheet at its fair value. Fair value is the cost to acquire the patent. If the business purchased the patent, it should be valued at the cost to acquire the patent from the former owner.