Brands debate: wake up to the real world

Article Abstract:

The debate over the proper accounting treatment of brands is linked to the debate over the proper accounting treatment of goodwill in the UK accounting profession. Many accountants feel that the proper treatment of brands is for them to be regarded as goodwill and be capitalized and amortized over their useful life accordingly, but real-life managers have difficulty accepting the fact that brands should be written down for a predetermined annual charge. Amortizing brands for a pre-determined annual charge against accounts ignores the fact that the amount of capital management puts into marketing, and thus the building of brand equity, fluctuates annually. Marketing expenditure has attributes of capital expenditure, but returns are uncertain and marketing costs must be written off in the year they are returned. Putting brands on company balance sheets is a tricky proposition as management must be conscious of their value as well as profits. Management must be wary of management reporting and information systems that produce different results from their financial accounting systems.

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Brand valuation: A true and fair view

Article Abstract:

The corporate balance sheet treatment and valuation of brands is a continuing controversy in the accountancy profession due to: the threat to historical cost accounting inherent in the valuation of intangibles; the lack of guidelines in assessing brand value; and the traditional attribution of brand value as a subset of goodwill. Brands are separately identifiable assets with distinct legal status that confer economic benefit on their owners and should be considered as part of the net asset equation rather than part of goodwill. One method that accountants can use to compute brand value is applying a multiple of the independent earnings stream generated by the brand. The multiple is derived from an analysis of brand strength predicated on seven factors, including: leadership, stability, and the market.

Methods, Value (Economics)

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Brands - the way to the yellow brick road?

Article Abstract:

The problem with accounting for brands is that current accounting practice is not focused towards intangibles, which has created a debate on the proper method of brand valuation on corporate balance sheets. The Accounting Standards Committee (ASC) view is that brands and goodwill are indistinguishable and should be valued with the same accounting methods. The ASC's view is unsound since brands and goodwill are significantly different: brands are separate assets that produce distinct income streams and as such are assets with distinguishable value. Goodwill differs from brands in that it is a premium paid by an acquiring company over the acquisition's net assets.

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