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Are Intangible Assets Capitalized or Expensed?

The short answer is it depends.

Intangible assets (e.g., trademarks, copyrights, patents etc.) can generally present themselves on a company’s financial statements in one of two ways, they can either be purchased or developed internally. While purchased/acquired intangible assets will always be capitalized as a noncurrent asset on the balance sheet and subsequently amortized, the development of intangible assets internally will be expensed on the income statement.

Exceptions to this rule:

Like all rules in the world of accounting, there will always be exceptions. Regardless of wether intangible assets are capitalized or expensed upon their purchase or internal development, certain costs associated with them will always be capitalized. These capitalized costs are listed as follows:

  1. Legal fees associated with the successful defense of an intangible asset is arguably the exception that you are most likely going to see on the CPA exam. Keep in mind, it is only the successful defense of an intangible asset that will be capitalized, legal fees associated with the unsuccessful defense of intangible assets will always be expensed in the period incurred.
  2. While legal fees associated with the defense of intangible assets will depend on whether or not the defense is successful or unsuccessful when determining whether the costs are capitalized vs expensed, other legal and other registration fees during the development of the patent will always be capitalized.

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