FASB Rules for Trademark Costs

By Larissa Bodniowycz, J.D.

FASB Rules for Trademark Costs

By Larissa Bodniowycz, J.D.

Trademarks most often fall into the category of intellectual property rights—which they are—but they are also intangible assets a business must address in accounting. The Financial Accounting Standards Board (FASB), a nonprofit organization that develops accounting standards, has guidelines that tell businesses how to account for their trademarks.

Laptop displaying the word "Trademark" on the screen

Trademark Basics and Valuation

A trademark is any word, symbol, or phrase that distinguishes one business's goods and services from another's. Business names, logos, and slogans are common examples. Registering a mark grants its holder the right to prevent others from using it in a manner that could cause confusion. The owner can usually prevent others from using it in connection with the same type of good or service in the same geographical region. Although registration is not necessary, it does provide additional legal protection.

How you calculate the value depends on whether your business developed it on its own or acquired it from another business. The value of internally generated ones can be done by adding the costs associated with registering the mark and the cost of defending the mark in legal proceedings. As not all are registered or require legal action, some internally generated trademarks have a value of $0. Businesses generally do not list them without an accounting value on their balance sheet; they only put assets for which they can calculate a fair value on the balance sheet.

Under FASB guidelines, a business must value one that was purchased from another business on the basis of its fair value, the amount for which the business could buy or sell the asset in a voluntary transaction. In most cases, the fair value is the amount paid to acquire it. Because a business can accurately calculate a fair value for them acquired from external sources, they usually appear on the balance sheet.

Amortization of Trademarks with Definite Useful Life

An asset's useful life is the length of time over which it provides value to the company. A useful life can be definite, lasting only a certain period of time, or indefinite. Most trademarks have indefinite useful lives because protection can last as long as the business protects its mark. However, some may have definite useful lives—for example, if the business intends to stop using it at a certain date.

Assessing the value that have definite useful lives involves amortization, the incremental allocation of the cost of an asset over years of the asset's useful life. For example, one with a value of $250 with a definite useful life of 10 years amortizes at a rate of $25 per year. It's impossible to amortize trademarks with indefinite useful lives, as you cannot identify the number of years for which it will be useful.

Decreases in Market Value

When an asset's market value decreases, a business's accounting records must reflect the change. The reduction in the value of the asset on a business's books is called impairment. The rules of impairment also depend on whether the trademark has a definite or indefinite useful life.

Under FASB rules, a business must determine whether its marks with indefinite lives require impairment on an annual basis. To do so, a business first conducts a qualitative analysis to determine whether an impairment is more likely than not. If it is, the business calculates the current fair value and records the new value in the company's books.

A business's trademarks with definite lives, in contrast, only require reviewing for impairment when circumstances indicate that the listed value on the books may not be recoverable. The value is unrecoverable if it appears that the money it will bring in during its life is less than the value of the asset listed in the company's accounting records. If the value is not recoverable and exceeds its fair value, the impairment consists of the difference between its listed value and its current fair value.

Before trying to obtain trademark protection, understand the FASB rules and associated costs for applying for protection of your mark.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.