Key Takeaways

  • Trademarks are considered intangible assets and are capitalized when registered or purchased.
  • Registration and legal fees can be capitalized, but marketing and promotional costs cannot.
  • The key question—are trademarks amortized?—depends on their useful life:
    • Indefinite-lived trademarks are not amortized, but tested annually for impairment.
    • Finite-lived trademarks may be amortized over their useful life.
  • Trademark valuation is influenced by brand recognition, remaining legal life, renewal status, and market position.
  • Proper accounting treatment requires compliance with FASB rules and GAAP, with ongoing reassessment of impairment and fair value.

Trademark accounting refers to the accounting treatment of costs associated with the development of a trademark in the company's books of account. It also includes the process of determining the financial value of a trademark for presenting it in the balance sheet and other financial reports of the company.

How to Capitalize a Trademark for Accounting

Trademarks refer to registered logos, designs, and symbols used by a business to differentiate its products or its own identity from the products or identity of others in the market. A similar mark for services is called a service mark. However, a trademark can cover goods as well as services. A popular trademark among customers is often called a brand.

Trademarks are assets of a business. They are included under intangible assets in the balance sheet. For the purpose of accounting, a trademark is capitalized, meaning that it is recorded in the books of accounts as an asset through a journal entry.

The Financial Accounting Standards Board (FASB) rules, which are a part of the generally accepted accounting principles in the United States, govern the accounting treatment of trademark costs. The actual treatment of trademark costs in the financial reports of the company depends upon several factors like the method used for developing the trademark, useful life of the trademark, and fluctuations in its fair market value.

Trademark Amortization and Impairment

A frequent question in trademark accounting is: are trademarks amortized? The answer depends on whether the trademark has a finite or indefinite useful life.

  • Indefinite-lived trademarks: Most registered trademarks fall into this category because they can be renewed indefinitely every 10 years. These assets are not amortized but must undergo annual impairment testing to confirm their value is not overstated on the balance sheet.
  • Finite-lived trademarks: In some cases—such as contractual restrictions or business decisions that limit use—trademarks may have a determinable end date. These are amortized systematically over their useful life, typically on a straight-line basis.
  • Impairment testing: If the fair value of a trademark drops below its carrying value (for example, due to brand damage, declining market share, or non-renewal), the company must record an impairment loss.

This distinction between indefinite and finite useful life is critical for accurate reporting and compliance with GAAP standards.

New Trademark Registration

  • You should capitalize only those fees that are directly associated with the registration of a new trademark.
  • You can capitalize both registration fees and the legal fees.
  • If your trademark registration is contested in a court of law, you can also capitalize the legal fees associated with the case.
  • You cannot capitalize the cost related to the marketing or promoting of your trademark. Even though these expenses increase the value of your trademark, they are considered operational expenses and therefore kept out of the balance sheet.
  • For the purpose of sale, you should carry out a separate valuation of your trademark instead of relying on the book value.

Purchasing a Trademark

  • When you purchase a trademark, whether standalone or along with a business, it comes at a fair market value.
  • Valuation is usually done through a third party, which determines the market price of the trademark.
  • The remaining life of a trademark also influences its market value. A trademark has a lifespan of 10 years from the date of registration.
  • You must renew a trademark every 10 years in order to keep the registration active. Failure to file renewal within the stipulated deadline cancels the trademark and diminishes its value.

Valuation Factors in Trademark Accounting

When a trademark is purchased, its value is not limited to the transaction price. Accountants and valuation professionals consider multiple factors that affect its worth:

  • Market recognition and brand strength – Well-known trademarks often carry a premium due to their established consumer trust.
  • Remaining legal protection – Trademarks must be renewed every 10 years; a lapsed or soon-expiring mark may reduce valuation.
  • Revenue impact – The degree to which the trademark drives sales, customer loyalty, or licensing revenue.
  • Competitive environment – The strength of competing brands and potential risks of dilution or infringement claims.
  • Synergies in acquisitions – In mergers or acquisitions, trademarks may be a key driver of goodwill, impacting negotiations and balance sheet presentation.

Valuation is usually performed by independent experts, especially in transactions, financial reporting, or litigation.

Types of Intangible Intellectual Assets

Despite the absence of any physical attributes, intangible assets hold a certain financial value for a business.

Trademarks

Trademarks prevent others from using a name, logo, or branding of your business. When promoted or advertised en masse, trademarks create a powerful brand association.

A trademark can be in the form of a logo, image, word, or phrase used to distinguish products or services of a business from those of others. It creates an instant identity among customers and establishes certain expectations regarding the quality and price of the product.

Trademarks often have a much higher financial value attached to them than what's shown in the financial reports of the company. This disparity comes from the fact that a business can only include the development cost of a trademark in its books of account. Moreover, all costs of development do not qualify for capitalization of a trademark. For example, the cost of creating a logo and the cost of advertising it are not eligible to be capitalized.

Usually, intangible assets are amortized over a period of their expected useful life. However, trademarks are not amortized since they retain their value forever. Nonetheless, you should reassess your trademarks annually. If the value of your trademark has impaired, compared to its value a year ago, you should readjust the market value of the trademark and record the difference as a financial loss.

Copyrights

A copyright protects you from unauthorized publishing or reproducing of your creative work like poetry, plays, lyrics, and drawings. It is an amortizable asset and included in the balance sheet of a business.

Patents

A patent is also an amortizable asset. It grants an exclusive right to commercialize an invention. Typically, a U.S. patent has a life of 20 years.

Trademarks vs. Other Amortizable Intangibles

Unlike patents or copyrights, which almost always have a finite legal life and are amortized over their expected use, trademarks are unique. Their ability to be renewed indefinitely places them in a different category:

  • Patents: Amortized over their 20-year statutory life.
  • Copyrights: Amortized based on the expected duration of economic benefit.
  • Trademarks: Usually considered indefinite-lived and not amortized unless a business decision or external factor limits their use.

This distinction makes trademarks particularly valuable for businesses building long-term brand equity. However, it also means they must be closely monitored for impairment to prevent overstatement of asset value.

Frequently Asked Questions

  1. Are trademarks amortized under GAAP?
    Not if they are indefinite-lived. Trademarks with indefinite renewal rights are not amortized but must be tested annually for impairment.
  2. When would a trademark be amortized?
    A trademark is amortized only if it has a finite useful life—for example, if it cannot be renewed or its use is contractually limited.
  3. How is trademark impairment tested?
    Impairment testing compares the trademark’s carrying value on the books to its fair market value. If the carrying value is higher, the difference is recorded as a loss.
  4. What costs can be capitalized for trademarks?
    Registration fees, legal fees, and acquisition costs can be capitalized. Marketing and promotional expenses cannot.
  5. Why are trademarks valued differently in acquisitions?
    Because brand recognition, legal protection, and revenue generation potential can significantly influence purchase price and reported goodwill.

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