I recently just missed out on purchasing a property, which was hugely disappointing. But, just a reminder that I need to keep plugging away. Hopefully, next time, I will be ready and able to snap up the property I want. I always look for old houses, on good blocks of land, because I care less about the house (depreciating asset) than the land (appreciating asset). But, it has got to be a compromise, as you always get better rental yield for new places. So, serviceability (cash flow) goes down when you focus too much on investing in an appreciating asset and don’t accept that some amount of what you have to invest has to go into depreciating assets.
It’s normal to think like this about real property. But how often do we stop and think about the mix of our investment in intangible (intellectual) property. How much has your business invested in appreciating intellectual property vs how much has it invested in depreciating intellectual property, and have you got the right mix for you?
First, it’s important to clarify which intellectual property assets are appreciating vs depreciating. Trade marks, my favourite (which you might have guessed from my preference for land), are appreciating assets. Provided they are used, they are renewable indefinitely, at 10-year increments. In this way, the Coca-Cola brand, which was first coined in 1886, is worth more than 100 billion U.S. dollars in 2025.
On the other hand, all intellectual property assets with a finite lifespan (patents, designs, copyright) are depreciating assets. Each year, you can amortise 10% of the cost of obtaining a registered design, such that after 10 years when the design registration expires, the asset is fully amortised. If it becomes useless prior to the 10 year period, you can derecognise it and mark the non-amortised portion as a loss. In this way, money spent on acquiring intellectual property rights is less of an expense than money spent on other legal fees. Imagine if you could amortise the cost of that divorce lawyer you used? We would all be a lot richer.
Now, Tarr Law does not have any accountants working for us, and we cannot profess to know about the intricacies of these matters. But, we are simply saying that having an understanding of the nature of intellectual property from an accounting perspective, is hugely relevant to any business that owns any form of intellectual property rights (which is EVERY business, as every business owns a trade mark). Please ask your accountant, whether your intellectual property assets are captured on your books, and whether the appreciating assets are being valued annually, and the depreciating assets are being amortised annually, and whether any appreciating or depreciating assets that are no longer of use are being derecognised and thus marked as a loss (think, each time you fail to renew a trade mark, can that be offset against company profits, thus reducing the company tax payable for the year and increasing the dividends payable to you/your shareholders?)
The implications of intellectual property assets are often underestimated. It’s important to engage someone who is deeply immersed in intellectual property and thinking about it from all angles. We at Tarr Law live and breathe intellectual property. Come and see us for a consultation today. If you want to book a session for us to speak with your accountant, and help you work with your accountant to get your intellectual property assets properly recorded on your books, we can do so. The sooner you come see us, the sooner you can leverage what you have. Every advantage counts.