Definition: A copyright is the legal privilege given to the owner to publish and sell musical, literary, and artistic work during the creator’s life plus 70 years. In other words, it’s the right to use and sell artistic work exclusively 70 years after the author dies.
What Does Copyright Mean?
Copyrights are extremely common in our culture and are attached to every song, piece of artwork, and logo that we see on a daily basis. Companies are forced to copy right their creations to protect their revenue earning abilities. For instance, if there were no rights on the Beatles songs, anyone could perform and sell them. They wouldn’t be protected and the owner wouldn’t have the exclusive rights to use the artwork.
Since copyrights protect and create future revenue earning assets, they are capitalized and reported on the balance sheet along with the other company assets.
Like patents and trademarks, copyrights are intangible assets and can be amortized over their useful lives. The amortization process allocates the assets’ costs evenly each year throughout the assets’ useful life. This process is consistent with the matching principle because expenses are matched with the revenues they help to generate.
Typically, right costs are not expensive, however. In fact, basic right protect is available for free to the creator of the artwork. Unlike patents and trademarks, the only identifiable costs associated with copyrights are the small fees paid to the US Copyright office to establish the rights. If these fees are immaterial, they are often expensed in the current period.
Copy rights can be purchased from the creator, however. In this case, the rights can be extremely expensive. Going back to our Beatles example, Paul McCartney tried to purchase the Beatles back catalog when it was for sale and Michael Jackson outbid him. These rights were extremely expensive and should be capitalized and amortized.