Patents - Three Financial Statements
If you buy a patent, how does it affect all three financial statements? Any help is welcome. The question sounds simple but I can't attribute specific line times beyond those of intangible assets.
Not sure if this is right, but I would assume cash flow from investing drops by the amount for the patent, dropping overall cash. Assets go down by cash amount but also rises as a result of the patent.
What specific line item under CFI would encapsulate this?
Hey so from what I understand, if the patent has an expiration date, the cost would get classified as ‘purchases of intangible assets’ or capex in CFI and you would amortize it over a straight-line throughout its life. In the balance sheet, intangible assets get increased by the cost then gets reduced by the amortization over time.
If it has an indefinite-life, then the full cost would get expensed when purchased
I think indefinite-lived assets go on the balance sheet as intangibles and then never amortize unless there is an impairment- at which point there is a decrease in the asset with a corresponding expense on the IS
I think the first part you said makes sense since a patent usually has a usable life dictated by the government, so the asset would amortize each year.
Oh yeah you’re totally right, thanks
In terms of the IS, would only the subsequent amortization expense be reflected?
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