How is a purchased patent recorded on a company's balance sheet?

A purchased patent is recorded on a company's balance sheet at its purchase price or fair market value at the time of acquisition. This valuation reflects the amount that the company paid to obtain the patent, which can be considered an intangible asset. This accounting treatment aligns with the principles of both Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), which recognize that intangible assets are to be recorded at their acquisition cost.

The purchase price captures the economic benefit that the patent is expected to provide to the company, which justifies its recognition as an asset. Over time, the value of the patent may be amortized, reflecting its consumption or expiration. However, at initial recognition, it is always the price paid or the fair market value that is recorded on the balance sheet.