Are startups putting IP on their balance sheet?

Question

When starting a company in tech the question eventually arises what to do with putting IP on the balance sheet as it is developed. Sometimes founders have IP they are bringing into the newly founded company. Are startups putting IP on their balance sheets and how do they practically go about doing this?

gidorah · Accepted Answer

I am a UK accountant.To my knowledge, under IFRS you cannot put IP on your own balance sheet. If you're bought by another company, it goes on the balance sheet as "goodwill" which is the difference between the price paid and the book value of net assets.R&D spend is pure cost to the business. There might be tax advantages to doing it (UK has some addital tax benefits), but broadly just hits the income statement.I'm pretty sure that USGAAP has similar rules, however, I would apply a health warning to what I've said.

mindwok · Answer

There are strict rules about recognising IP on a balance sheet to stop you from just slapping some value on your own work and saying "Yep, we're worth a billion dollars!". There are some cases you can do it though, mainly they involve acquisitions of companies or of the IP which allows you to accurately determine a market value for the IP.The other way is capitalising expenses associated with developing IP, which I'm assuming since your on HN is software. It's been a while since I was in this space, but you can often capitalise software development expenses under certain conditions. I found this link which outlines this in more detail: https://www.accountingtools.com/articles/capitalization-of-s...