Should trademarks be included on the balance sheet?

A trademark should be reported on the balance sheet as an intangible asset. However, the cost principle prevents the reported amount from being more than the cost of acquiring and defending the trademark. A trademark that was developed internally (rather than purchased) might have a cost of $0, and therefore it will not be listed on the balance sheet.

For example, Company X, a consumer products company, introduced a new product in 1990. It registered the trademark in 1990 for a small fee that was immediately expensed. Since then Company X has been very effective in promoting this trademarked brand. Consumers now pay a premium price for this recognized and superior product. A competitor offers to purchase the trademark from Company X for $300 million in cash. If Company X does not sell the trademark, Company X will not list the trademark as an asset. (Recall that the trademark's cost was $0.)

If Company X were to sell the trademark to Company Y for $300 million, Company Y will report the trademark on its balance sheet at $300 million. The reason is that there was a transaction for $300 million and Company Y's cost of the trademark was indeed $300 million.

Free Financial Statements Cheat Sheet

You are already subscribed. This offer is not available to existing subscribers.
Error: You have unsubscribed from this list.
Step 2: Please check your email.