Identify and Discuss the Issues Relating to the Recognition of Brand Names, for Both Internally Developed and Purchased Brand Names.
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Identify and discuss the issues relating to the recognition of brand names, for both internally developed and purchased brand names.
Just like a person’s reputation is one of their most valuable assets, brand names have also become one the most valuable assets of a company. Brand valuation are fast gaining credibility and making it onto balance sheets, recognising brands as revenue-generating assets (Siu, May 2002). It has become a mainstream business tool which, in addition to balance sheet reporting, is used for the following purposes: Merger and acquisition planning; Tax planning; Securities borrowing; Licensing and franchising; Investor relations; Brand portfolio reviews; Marketing budget determination; Resource allocation; Strategic marketing planning and internal communications. The following four are the fundamental recognition criteria to be recognized as an element in financial statements:
• It has a relevant attribute measurable with sufficient reliability.
• The information about it is capable of making a difference in user decisions.
• The information is representational faithful and verifiable.
• The information must be neutral.
In the present economy, however, intangible assets such as intellectual capital frequently create value. The International Accounting Standard 38 (IAS38) became effective from July 1999 that required the capitalisation of purchased goodwill and acquired intangible assets such as licenses, franchises, publishing, patents and brands (Heberden, Aug 2000).
Capitalisation Cost
Historically, intangible assets have always been considered “risky” assets. Expenditures on intangibles, which result in new technologies and brand names, are difficult to quantify and value. Of particular importance is the measurement of the cost of the assets being capitalized (Research and Development, Patents, and Employee training), and the use of expected present value. It is more difficult to measure the future benefits of...
Just like a person’s reputation is one of their most valuable assets, brand names have also become one the most valuable assets of a company. Brand valuation are fast gaining credibility and making it onto balance sheets, recognising brands as revenue-generating assets (Siu, May 2002). It has become a mainstream business tool which, in addition to balance sheet reporting, is used for the following purposes: Merger and acquisition planning; Tax planning; Securities borrowing; Licensing and franchising; Investor relations; Brand portfolio reviews; Marketing budget determination; Resource allocation; Strategic marketing planning and internal communications. The following four are the fundamental recognition criteria to be recognized as an element in financial statements:
• It has a relevant attribute measurable with sufficient reliability.
• The information about it is capable of making a difference in user decisions.
• The information is representational faithful and verifiable.
• The information must be neutral.
In the present economy, however, intangible assets such as intellectual capital frequently create value. The International Accounting Standard 38 (IAS38) became effective from July 1999 that required the capitalisation of purchased goodwill and acquired intangible assets such as licenses, franchises, publishing, patents and brands (Heberden, Aug 2000).
Capitalisation Cost
Historically, intangible assets have always been considered “risky” assets. Expenditures on intangibles, which result in new technologies and brand names, are difficult to quantify and value. Of particular importance is the measurement of the cost of the assets being capitalized (Research and Development, Patents, and Employee training), and the use of expected present value. It is more difficult to measure the future benefits of...