Trademarks
Trademark Symbol
The following symbol is attached to images or text that have been trademarked with the federal government.
A trademark is an image, word, phrase, logo or combination of those elements used to identify a specific type of business or service. A trademark allows a customer to instantly identify a product and associate the item with a response regarding its quality and price. If developed properly, a trademark will allow customers to make a positive connection with the product to which it is attached. In short, a trademark is a visual representation of a business's brand or logo.
To protect the work that it puts into developing its brand, a company will obtain a trademark. The legal protection of a trademark prevents other businesses from using the specific image and text associated with the brand. In some circumstances, a business may obtain a "common law" trademark. This offers the business some legal protection. Generally, American businesses will register their logo with the U.S. Patent and Trademark Office. This offers them more legal protection, but can also be more expensive to obtain.
A trademark is an intangible asset, as it's a nonphysical item granting a business the legal right to exclusively use a logo or other item. This means it is reported on a business's balance sheet.
Valuing Trademarks
Trademarks have enormous value to businesses, although that may not translate to a business's financial report. A business can only value any intangible asset, including a trademark, based on what it cost to acquire. For example, if a business purchased a product line from another company, the trademark associated with that product could have a high value on the acquiring company's books.
The value of a trademark can also be quite low. All costs associated with creating the logo or promoting its public awareness are not included in the trademark's value if the business did all these tasks internally. As a result, some trademarks could have no value on a company's books despite a significant investment by the business.
Annual Review of Trademarks
Some intangible assets are amortized over time. This means that the value decreases every year as an expense for using the item. The amount the value of the asset decreases also decreases the business's income for that year. Trademarks are not amortized since each is considered to have an indefinite life, meaning a perception exists that a trademark can retain its value forever.
However, a business must reassess the value of its trademarks annually. If a business determines that one of its trademarks is worth less than it was a year ago, the value of the intangible asset must be impaired. When an impairment occurs, the value of the asset must be decreased to its current market value. The difference between the current value of the trademark and its former value must be recorded as a financial loss.