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Esk company purchased a patent for $ 2.6m. The purchase cost capitalized comprises the cost of the patent and other costs such as legal fees and ADMINISTRATIVE COSTS.
What is the correct treatment for legal fees and administrative costs in this scenario?
Should these two be treated as revenue expenditure or should they be capitalised?
For PPE, cost includes “any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management” (IAS 16).
For an acquired intangible assets (e.g. this patent), cost includes “any directly attributable cost of preparing the asset for its intended use.” (IAS 38)
An example of a directly attributable cost is “professional fees arising directly from bringing the asset to its working condition” … so this would include legal fees (e.g. in registering a change of ownership of a patent).
Examples of expenditures that are not part of the cost of an intangible asset include
“administration and other general overhead costs”. So these must be EXPENSED.
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