Accounting for trademarks
3. Trademark amortization and impairment
A trademark is amortized during the period of its expected useful life, to arrive at which an entity analyses:
- terms of useful lives of alike intangible assets,
- possible obsolesce due to technical progress, and
- legal restrictions on exclusive use.
Generally, trademarks are amortized using the straight-line method over ten years (as the exclusive right to use the trademark expires then).
For instance, the annual amount of amortization for the trademark acquired by Company ABC will be: $10,000 รท 10 years = $1,000.
Account Titles |
Debit |
Credit |
Amortization Expense |
$1,000 |
|
Accumulated Amortization |
$1,000 |
At the end of the first financial period, the net book value the trademark will be: $10,000 - $1,000 = $9,000, and will decrease annually by $1,000 until it is fully amortized (or removed from the books for a number of reasons like a sale).
A company may continuously renew the trademark registration for subsequent 10-year periods and elect in its accounting policy to classify the trademark as one that has an indefinite useful life. In that case, the trademark would not be amortized, but will be subject to impairment.
According to US GAAP, definite-life and indefinite-life trademarks as intangible assets should be examined for the signs of impairment annually. If the trademark net book value exceeds the current market values, then impairment occurs. The company has no right to reverse the impairment charge if the market conditions subsequently change.
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