Accounting News

Tuesday, September 6, 2011
Patents on the Balance Sheet

The latest trend in the tech industry is buying patents. The biggest example is the sale of Motorola Mobility Holdings Inc and its 24,500 patents to Google Inc for $12.5 billion. The patents are used as to sue competitors or as a defense against being sued. The problems with software patents have been covered very well by NPR so I won't go into that here. The interesting thing for the accounting world is how they should be handled on the balance sheet.

Now a global group is looking into how this should be shown on balance sheets. In the United States if a patent is developed in-house is considered an expense. However, if they are purchased from another company they are shown as an asset at fair value. The same patent goes from worthless at one company to millions at the next. This makes it difficult for the consumers of balance sheets to compare companies.

Intangible assets like patents are becoming a larger part of many companies balance sheets. They have grown from 32% in 1985 to 68% in 2010. No matter what the solution it is obvious that changes need to be made.