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Is a Patent a Current Asset? Breaking Down the Balance Sheet

Is a Patent a Current Asset

In the intricate world of accounting and finance, the classification of assets is critical for businesses. Patents, in particular, are a unique type of asset that spurs many questions regarding their placement on a company’s balance sheet. 

Unlocking an understanding of where patents lie in the financial statements is essential for both financial professionals and business owners alike.

Is a Patent a Current Asset?

No, a patent is not classified as a current asset. It is considered a non-current or long-term asset on a company’s balance sheet. 

Patents provide value over an extended period, typically 20 years from the filing date, rather than being readily convertible into cash within a year. 

They fall under the category of intangible assets, highlighting their role in generating future economic benefits over their useful life, rather than being short-term financial resources.

What is a Patent?

Before delving into the financials, let’s clarify what we mean by a patent. A patent is a form of intellectual property that provides the owner with the legal right to exclude others from making, using, or selling an invention for a certain period, typically 20 years from the filing date. 

They are granted to inventors as a reward for their ingenuity and to encourage economic growth.


Understanding Assets

Assets are resources owned by a business that are expected to bring future economic benefits. They are the foundation of any business’s financial environment. When we break down assets, we often think of two key types: current and non-current

Current assets are items that a company expects to convert into cash within one fiscal year. Non-current assets, on the other hand, are the resources that a business plans to use over a more extended period.

Classification of Patents in the Balance Sheet

When accountants place patents on a balance sheet, they categorize them as non-current assets, also known as long-term or fixed assets. This decision is because patents are not intended for resale and do not quickly turn into cash within a business year. 

They are strategic business investments that hold value over several years due to their ability to generate revenue, protect market share, and grant competitive advantages.

How Patents Impact a Company’s Long-Term Financial Health

Patents do not just sit idly by on the balance sheet; they contribute significantly to a company’s long-term financial stability. With a patent, companies can protect and exclusively benefit from their inventions. 

Patents may also lead to licensing deals and partnerships, creating streams of income that stabilize and potentially increase a business’s bottom line over time.

Understanding Amortization of Patents

Similar to physical assets like equipment or vehicles, patents have a finite useful life and lose value through use and expiration. This gradual loss is where amortization comes into play. 

Amortization of patents refers to the systematic allocation of the patent’s cost over its useful life. As years go by, the patent’s book value decreases on the balance sheet, reflecting its diminished usefulness and eventual path to expiration.

Intellectual Property Valuation and Its Implication on Financial Decision Making

Understanding the financial implication of patents extends beyond merely recognizing them as non-current assets. 

Intellectual Property (IP) valuation plays a crucial role in critical financial decisions, including mergers and acquisitions (M&A), investment analysis, and financial reporting. 

The value assigned to patents on the balance sheet can significantly affect the perceived value of a company, influencing investor decisions and potentially the company’s market value.

Valuing a patent accurately is complex and influenced by various factors, including the patent’s remaining useful life, the technology’s relevance in the market, any existing or potential legal disputes, and the patent’s ability to generate future revenue streams through licensing or sales. 


For financial reporting purposes, the initial valuation of a patent often includes direct costs like filing fees and legal expenses. However, subsequent valuation adjustments may be necessary due to impairment or changes in market conditions, affecting the asset’s carrying value on the balance sheet1.

Furthermore, the process of amortization allocates the cost of the patent over its useful life. This gradual expense recognition matches the patent’s cost with the revenue it generates, adhering to the matching principle in accounting. 

However, changes in technology or market preferences can accelerate a patent’s obsolescence, necessitating adjustments to its amortization schedule and impacting the company’s financial statements2.

IP valuation, including patents, poses unique challenges for accountants and financial professionals. 

These challenges underscore the importance of rigorous financial analysis and strategic decision-making in leveraging intangible assets for long-term competitive advantage and financial health.

Frequently Asked Questions

Can a patent become a current asset? 

The straightforward answer is no. Due to their long-term value and the time required for development, patents are inherently non-current assets.

How is the value of a patent determined in a balance sheet? 

Determining a patent’s value can be intricate. Typically, it is measured by the cost incurred in obtaining the patent, including filing fees and legal costs, which may be amortized over time.

What happens to the patent asset value when a patent expires? 

Upon patent expiration, the asset is completely amortized, and its book value reaches zero because it can no longer contribute economically.


Patents hold a unique place on the balance sheet. They are non-current assets important for a company’s vitality and innovation edge. 

By understanding the nature and financial intricacies of patents, businesses can make more informed decisions and utilize patents to their strategic advantage. 

With this knowledge, you can appreciate a patent’s true value and its function within the broader spectrum of a company’s financial health.