How to Calculate Impairment of Copyrights

by John Cromwell

Impairment is an accounting method for valuing a copyright on the owner's financial statements. Specifically, impairment decreases the stated value of the copyright to reflect the current market value. Under Generally Accepted Accounting Principles (GAAP), copyrights are considered to be an "intangible asset," that is, a long-term resource that has no specific physical form. The method of calculation of impairment of intangible assets is defined in Financial Accounting Standards Board (FASB) Statement 142.

Protect against infringement by registering a copyright. Get Started Now

Step 1

Determine the useful life of the copyright. This is the period of time during which the underlying original work can contribute directly or indirectly to a business’s income. The useful life of a copyright is based on several factors, such as what the copyright material is used for and the possibility of the copyrighted material becoming obsolete. The maximum length of the useful life of a copyright is defined by copyright law. Works created after January 1, 1978 automatically receive legal copyright protection for the duration of the author's life plus 50 years. Works drafted for hire are protected for 75 years from the point of publication or 100 years from when the work was created, whichever is shorter.

Step 2

Assess the asset’s current carrying amount. For a copyright to be impaired, it must have a pre-existing value on the owner’s books. To determine the current carrying amount, take the original value of the copyright and divide it by the asset’s useful life. Multiply the result by the number of years you have held the asset and subtract that amount from the copyright’s original value. What remains is the current carrying amount.

Step 3

Determine the copyright’s fair value. The fair value of the asset is what price a buyer would pay for the copyright, assuming that the buyer is a third party that knows all the relevant facts about the copyright, and neither party is forced to enter into the transaction.

Step 4

Subtract the fair market value of the copyright from its current carrying amount. The result is the impairment loss on the copyright.