Copyright

A copyright is an exclusive legal right, granted automatically under law to the creator of an original work, to publish, reproduce, distribute, and sell that work, and to control who else may do so. In accounting terms, a copyright that a company has purchased, or the direct registration and legal costs of securing one, is recorded on the balance sheet as an intangible asset, carried at cost, within property and other long-term assets.

Under the cost principle, a copyright is recorded at whatever it actually cost the company to acquire — the purchase price if bought from another party, or the direct legal and registration costs if the company secured copyright protection on its own original work. Once recorded, a copyright with a determinable useful life is amortized to expense over that useful life, which for accounting purposes is usually based on how long the company expects to derive economic benefit from the work, a period that is often shorter than the copyright's full legal protection term.

A company that creates its own copyrighted material — a software program, a piece of music, a textbook, a film — typically expenses the costs of creating that work as they are incurred, such as salaries and production costs, rather than capitalizing them as the cost of an intangible asset, except in specific circumstances where accounting rules permit or require capitalization, such as certain software development costs incurred after a project reaches technological feasibility. This means a company's most commercially valuable copyrighted content, built up internally over years, frequently appears on the balance sheet at a cost far below what it is actually worth, since most of the cost of creating it was expensed immediately rather than capitalized.

Copyright protects original creative and literary works — books, music, software code, films, and similar expressions — while a trademark protects brand identifiers such as names and logos, and a patent protects inventions and processes. All three are accounted for the same basic way, as intangible assets recorded at cost and amortized over their useful lives if that life is determinable, but they arise from different kinds of creative or inventive work and are registered, where registration applies, with different government offices.

A purchased copyright that turns out to be worth less than its carrying amount — because the underlying content has become obsolete, fallen out of commercial favor, or lost legal protection sooner than expected — must be tested for impairment, with any shortfall between its carrying amount and recoverable value written off as a loss. This is a particular risk in media and entertainment companies that have acquired large content libraries through acquisitions, where a significant portion of the purchase price is often allocated to copyrighted content that can require a meaningful impairment charge if audience tastes or distribution economics shift unfavorably after the purchase.