From time to time, in typical situations (e.g., when preparing to transfer trademark rights), it turns out that trademark rights and similar intellectual property—which have otherwise undoubtedly been acquired—are not recorded in the rights-holding company’s accounting records. Thus, from an accounting perspective, the company would be selling something for consideration that it does not actually possess. What can be done in such cases?

This is a relatively common situation in the world of intellectual property, and although it may seem daunting at first, it can be resolved within the framework of accounting law. The goal is to ensure that the accounting records are consistent with the legal reality prior to the transaction. Here are the possible solutions from an accounting perspective:

1. Recording the asset as an inventory surplus

The most practical and commonly used solution is for the business to record the trademark as inventory surplus. Since the trademark register serves as authentic proof of intellectual property rights, the accounting records must reflect this fact.

• Any additional assets discovered must be recorded at market value. It is advisable to support this with an internal valuation or an expert opinion, especially if the price specified in the purchase agreement is already known (this serves as a good starting point for determining market value).
• The asset should be classified as a property right. [T 11 (Property Rights) – K 96 (Other Revenue)]
• It is important to note that this revenue increases pre-tax income and may therefore result in a corporate income tax liability in the year it is recognized.

2. Correcting Errors from Previous Periods

If costs related to the trademark (e.g., fees, attorney’s fees) were previously incurred but were mistakenly not capitalized and were instead immediately expensed, the situation can be rectified as part of an audit.

• If the amount of the error is significant (exceeds the threshold specified in the accounting policy), then items affecting the results of prior years must be recorded against retained earnings.
• This is more complicated from an administrative standpoint (self-assessment, adjusting balance sheet columns); therefore, if the trademark’s “intrinsic value” (the cost of creation) was low, treating it as inventory surplus is a clearer solution.

Recording Sales After Settlement

Once the trademark has been entered into the books (as inventory surplus), sales proceed as usual:

1. Recording a receivable from a customer: Based on the invoice, we record the sales price as revenue. [D 311 (Accounts Receivable) – C 91-92 (Net Sales) + VAT (or other revenue, depending on the nature of the business)].
2. Removal from the books: The book value of the trademark (as determined in connection with the inventory surplus) must be recorded as an expense. [T 86 (Other Expenses) – K 11 (Intellectual Property Rights)].

What should you keep in mind?

• Term of protection: A trademark may be presented as an asset only if the protection is still in effect. The right as recorded in the registry must also be attached as an exhibit to the purchase agreement.
• Tax Relief Under the Tao Act: It is worth examining whether any tax base relief is available when selling intangible assets (for example, the rules governing registered intangible assets, although this is rarely applicable in the case of retroactive capitalization).
• Date of the contract: The date of the inventory report and the date of accession must precede the effective date of the transfer agreement.

In summary: the solution is to record the item in inventory at market value as excess inventory, thereby legalizing the asset’s existence on the company’s balance sheet, which makes it legally and accounting-wise eligible for sale.