Trademark is a guarantee of the company awareness in the market, an indicator of its status and success. What are the peculiarities of reflection of trademark transactions in accounting?
According to para.5 of Accounting Standards 8 “Intangible assets”, approved by the order of the Ministry of Finance of Ukraine of 18.10.1999 No. 242 (hereinafter − Accounting Standards 8), the rights to commercial designation (trademark rights (marks for goods and services), commercial (corporate) names etc.), except for those costs of acquisition of which to be recognized as royalty, belong to intangible assets.
At the same time, according to para.9 of Accounting Standards 8, expenses for creating of trade marks (trademarks) are not recognized as an intangible asset, but should be reflected as expenses of the relevant reporting period.
This approach is explained by the fact that during the creation of the trade mark (hereinafter − TM), the company alone is not able to reliably estimate its cost, but and accurate valuation is one of the most important criteria of asset recognition.
Transactions of receipts of TM as intangible assets can bу reflected in accounting as transactions of purchase, gift, and exchange for similar or dissimilar assets.
The costs associated with receipt of TM (acquisition), namely the cost of exclusive property rights, registration costs, payment of fees will form the initial cost of the trade mark on account 15 “Capital investments”.
For accounting of transactions of all intangible assets, including the rights to TM, it should be used primary accounting forms approved by the order of the Ministry of Finance of Ukraine “On approval of standard forms of primary registration of intellectual property rights as intangible assets” of 22.11.2004 No. 732 (hereinafter − Order No. 732).
Recognition of TM with reflection on the account 12 “Intangible assets” should be made on the basis of “Act of introduction into economic circulation of intellectual property rights as intangible assets” (typical form No.НА-1). For analytical accounting it is used “Inventory card of accounting of intellectual property rights as intangible assets” (typical form No. НА-2).
Expenses for the creation and maintenance own TM should be considered as expenses of relevant reporting period. Such expenses should be reflected in accounting as part of expenses of sales on account 93 “Sales expenses”.
Ownership of TM acquired is the subject to depreciation. According to para. 26 of Accounting Standards 8, the company independently determines the useful life of intangible assets, including:
- useful lives of such assets (it should be recalled that the validity of the mark is 10 years and can be extended every 10 years);
- obsolescence as provided for;
- legal or other similar limits on the useful lives;
- expected method of use of intangible assets by the company.
Accrual of depreciation starts from the month following that in which the intangible asset is put into economic circulation. The company should reflect the amount of accrued depreciation by increase in the amount of expenses of the company and accumulated amortization of intangible assets (para.29 of Accounting Standards 8).
The method of depreciation of intangible assets should be chosen by the company independently on the basis of the conditions for future economic benefits. If such conditions can not be determined, the depreciation is accrued using the straight-line method. The calculation of depreciation in the case of appropriate methods of accruing should be carried out in accordance with Accounting Standards 7 “Fixed assets” (para.27 of Accounting Standards 8).
When the value calculation depreciated, the liquidation value of intangible assets is equal to zero, except in cases of:
- the existence of non-cancellable commitments of another person on the acquisition of the object at the end of its useful life;
- possibilities of determining of the liquidation value on the basis of information of existing active market, and it is expected that such a market will exist at the end of the useful life of the object.
Royalty
According to para.20 of Accounting Standards 15, income arising from the use of assets by other parties is to be recognized as royalties, if:
1) it is probable inflow of economic benefits associated with this transaction;
2) income can be reliably evaluated.
Income in the form of royalty should be recognized on an accrual basis in accordance with the economic content of the relevant agreement.
Rules of reflection of expenses for the payment of royalty are regulated by the Accounting Standards 16 “Expenses”, approved by the order of the Ministry of Finance of Ukraine of 31.12.1999 No. 318 (hereinafter − Accounting Standards 16). Expenses for payment of royalty should be reflected in accounting depending on specificity of the company activity and therefore, can be entered into production expenses, general production, sales expenses or other operating expenses (paragraphs 15, 19, 20 of Accounting Standards 16).
