I am working with an early stage/startup medical device company that has never been audited. They are in the process of raising capital. Historically they have capitalized patent costs (
Is it preferable to expense or capitalize costs of internally developed patents
Answers
I think, I am not so sure, we have 2 issues here. The fisrt one is the consistency principle stating that the company is used to use the same
Greg: I will assume that you are reporting financial results under US GAAP. The basic rule (ASC 350-30-25-3) is that "Costs of internally developing, maintaining, or restoring intangible assets that are not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business or nonprofit activity and related to an entity as a whole, shall be recognized as an expense when incurred."
Since patents are specifically identifiable, and typically have determinate lives, this leaves open the possibility of capitalizing costs. There is very little specific guidance in the intangible asset section but, generally speaking and by analogy to other guidance, you can capitalize direct incremental costs incurred to acquire an intangible asset. Legal fees for filing could be capitalized. Management time is not generally incremental and would not be capitalized. Costs to maintain the patent would be expensed.
Any costs you capitalize would be subject to (i) amortization and (ii) review for potential impairment.
Bottom line - unless the legal costs for preparing and filing are substantial, the amounts involved may not be material and may not justify the effort required to track, amortize and test the balances.
Filed Under:
FP&A