Understanding Intellectual Property: Types, Examples, and Importance - P3

Shidonna Raven
5 hours ago
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BymWill Kenton

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Khadija Khartit

Fact checked by

Jared Ecker

Fact checked by Jared Ecker

Updated August 05, 2025

Source: Investopedia

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Accounting for Intellectual Property on Financial Statements

Many types of intellectual property are hard to value, so they often aren't listed as assets on a balance sheet. However, the value of the property tends to be reflected in the price of the stock because market participants are aware of the existence of the intellectual property.

Some intangible assets such as patents are recorded as property when they meet certain accounting criteria such as having an objective measure of their value and probable economic benefits. They're listed as assets and then expensed against profits during their useful economic lives. This expense is called amortization.

Amortization is an accounting method that decreases the value of an intangible asset over time. This process reduces income by letting the company expense a certain amount yearly for tax purposes as the asset gets older.

A patent might only have 20 years remaining before it's registered as public domain. A company would assign a total value to the patent. The patent would be expensed or amortized by the same amount each year for 20 years by dividing the total value by 20 years. The amortized asset amount would reduce the company's net income or profit for tax purposes each year.

Intellectual property that is considered to have a perpetual life, such as a trademark, isn't amortized because it doesn't expire.