Ask HN: Are startups putting IP on their balance sheet? | Hacker News Reader

Ask HN: Are startups putting IP on their balance sheet?

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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?

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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.

in europe you can choose to put it on the balance sheet or treat it like an expense. it goes under intangible assets. i think goodwill is just for some kind of intangible quality of the business like reputation.

source code or patents are actual hard assets regardless of whatever rules were made up. it is typical for bankers or acountants to dismiss the assets engineers create. imagine engineers did the same and reason that bonds are worthless because it is just paper or that your client base is worth nothing?

if you do not put IP on your balance sheet and keep expensing it eventually you end up with negative net worth which makes your business look very unattractive and unhealthy. been there done that. if you incurr expenses and in return create an asset it should be on the balance sheet. i cannot imagine diamond mining operations not putting the diamonds on the balance sheet….

I suggest you look at the IFRS (International Financial Reporting Standards) which you need to follow if you list in Europe. Goodwill is only on the purchasors balance sheet. You can push goodwill down to subsidiaries, but only under USGAAP.

R&D is expensed.

https://www.iasplus.com/en/standards/ias/ias38

> Initial recognition: research and development costs

> Charge all research cost to expense. [IAS 38.54] Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established. This means that the entity must intend and be able to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits. [IAS 38.57]

Edit: added link to IFRS intangible assets

right, so you do put it on the balance sheet. you just need to show you are actually creating a product.

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...

are you saying most startups including VC backed ones have no IP on their balance sheets?

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