Accounting for trademarks
2. Acquired trademarks
Accounting for purchased trademarks may be less complicated. As a trademark is bought in the open market, the agreement price is usually considered to be the fair value of the acquired trademark.
For instance, Company ABC acquired a trademark for $10,000.
1) The prepayment is made for the rights on the new trademark:
Account Titles |
Debit |
Credit |
Advances (or Accounts Payable) |
$10,000 |
|
Cash |
$10,000 |
2) The counterparty had provided the license agreement:
Account Titles |
Debit |
Credit |
Construction in Progress |
$10,000 |
|
Advances (or Accounts Payable) |
$10,000 |
3) The company recognized the trademark acquired:
Account Titles |
Debit |
Credit |
Intangible Assets |
$10,000 |
|
Construction in Progress |
$10,000 |
Trademarks may be acquired as part of a business combination in which case a part of the purchase price is allocated to the cost of the acquired trademarks. Such cost usually equals the fair market value of the acquired trademarks.