Patent Write Off Journal Entry

A patent is a grant of right from the government to inventors for an invention or design that can be legally enforced by suing those who copy it. Companies spend millions on research and development each year, so do not underestimate the value of this document.

Patents are a good thing for people who have invented something because it gives them a limited right to stop others from making, using, or selling that invention. A patent gives an inventor 20 years of protection in exchange for publishing a complete description of how to make and use the invention so that anyone can learn from it after the patent expires. Not only does a patent protect an inventor’s rights, but it also increases the value of their company as intellectual property.

The US Patent and Trademark Office (USPTO) is currently examining patent applications and patents that have recently been issued. Every day, people file new applications for inventions they believe to be patentable. Companies, universities, and individuals spend more than $1 billion on research and development every month in the United States alone. A patent is good for 20 years from the date it is granted by the USPTO or 17 years from when it issues if any requests for extension are filed and granted. However, there are instances where a patent is good for longer.

Patent is classified as intangible assets on the company balance sheet. The initial cost record will depend on the application fee that company spends to apply for a patent. It could be spent on the purchase price if company buys from a third party. The company must amortize the patent cost based on its useful life. If the patent no longer provides any future benefit, the company has to remove it by writing it off from the balance sheet.

Journal Entry for Patent Write Off

Patent is classified as intangible assets on the balance sheet. The company acquires a patent through the filing of a patent application or purchase from the other parties.

The patent is expired or loss its value, the company has to removed it from the balance sheet. The company has to reverse from balance sheet to expense on income statement. The journal entry is debiting expense and credit patent.

The transaction will remove the patent from balance sheet and record it as an expense.

If the patent has been amortized, its value also decreases. When the company wants to write off, they have to remove both cost and accumulated amortization of the patent.

The journal entry is debiting expense, accumulated amortization, and credit cost of patent.

The transaction will remove both cost and accumulated depreciation of the patent that require to write off. The expense will equal the patent net book value.

Example

ABC has applied for the patent application for the new research which can be use to develop a new product. The initial cost of patent is $ 5,000 which is recorded as intangible asset on the balance sheet. However, there is a new technology introduced to the market, the ABC’s patent becomes obsolete. Management does not expect to use the patent to develop a new product. Please prepare the journal entry for the write-off patent.

When the patent is no longer provides value to the company, we have to remove it from the balance sheet. Similar to other assets, we reverse the patent to expense in income statement. The journal entry is debiting expense $ 5,000 and credit patent $ 5,000.

It will remove the patent from balance sheet and record expenses of $ 5,000.