Recognising intellectual property on the balance sheet

Trademarks, patents, software, licences and know-how can be worth more than machinery or inventory. And yet, in many Swiss SME balance sheets, these intangible assets barely appear. Knowing when and how to recognise them — and when instead they remain a “hidden value” off the balance sheet — is decisive for the valuation of the business, for access to credit and ahead of a funding round or an exit.

What Swiss accounting law says

Under the Code of Obligations, an asset may be recognised on the balance sheet if it is controlled by the business, if it will generate a future economic benefit and if its value can be reliably determined. Intangible assets are recognised among fixed assets. Two practical rules govern almost everything:

valuation at no more than acquisition or production cost, not at an estimated “market” value;
prudence: when in doubt, the tendency is not to inflate assets.

The dividing line: IP acquired or developed in-house

This is the point that surprises many entrepreneurs.

IP acquired from third parties (a trademark bought, a licence paid for, software acquired): there is an objective cost — the price paid — and it can be recognised as an asset and amortised.
IP developed in-house (the brand you have built over the years, the team’s know-how): the costs are generally expensed through the income statement as they arise. The paradoxical result is that the most valuable brand — the one built by you — often does not appear on the balance sheet, while a purchased one does.

This explains why the real value of many IP-intensive businesses lies outside the accounting figures: it emerges only during a valuation or a sale, when the buyer recognises the goodwill.

Amortisation of intangible assets

Recognised intangible assets are amortised systematically over their useful life:

the economic useful life is estimated (for a patent, for example, no longer than the remaining protection);
amortisation reduces the balance-sheet value each year and is charged to the income statement;
if the recoverable amount falls below the book value, an impairment is recorded.

The choice of useful life and pace of amortisation affects profit and therefore the tax burden as well: it must be justified and consistent over time.

Goodwill

When you buy a business by paying more than the net value of its identifiable assets, the difference is goodwill: it captures the brand, customer base, know-how and market position not recognised individually. Acquired goodwill may be recognised and must be amortised over its useful life. Internally generated goodwill, by contrast, is not recognised: here is another source of value that remains implicit until an extraordinary transaction.

Why it is worth addressing

Business valuation: in a capital raise or an exit, investors and buyers look at the IP. Having it in order, owned by the company and documented raises the transferable value.
Access to credit: a balance sheet that better reflects intangible assets (where permitted) can strengthen the bank’s reading.
Transferability: IP registered in the founder’s name rather than the company’s is a classic problem that surfaces in due diligence. Ownership must sit with the company.
Tax consistency: amortisation and impairments must be set correctly to hold up in the event of an audit.

Standards beyond the legal minimum

The Code of Obligations sets the minimum. Those wanting richer disclosure — typically growing companies or those preparing for a round — can adopt standards such as Swiss GAAP FER, which offer more detailed rules on the recognition, amortisation and impairment of intangible assets, increasing comparability and investor confidence.

Common mistakes

IP in the founder’s name, not the company’s: value that is not transferable and a risk in due diligence.
No documentation of the costs and ownership of the intangible assets.
Recognising “market” values instead of cost, in conflict with the prudence principle.
Inconsistent amortisation or unjustified useful lives, open to challenge by the tax authorities.
Forgetting impairment when a brand or technology loses value.

How SIH ONE supports you

The Fiduciary division sets up with SMEs the accounting treatment of intellectual property — recognition of acquired IP and goodwill, amortisation schedules, impairments and verification that ownership sits with the company — ahead of valuations, financing and extraordinary transactions, in coordination with the legal and tax side. If your company’s value lies in its intangible assets, let’s make it show in the numbers.