Qualitative Characteristics And Appropriate Accounting Standards Accounting Essay



Financial statements have always been of important concern for organizations. These financial statements can be in various forms such as balance sheet, and income statement etc (Costales & Szurovy, 1993). The decisions of inclusion and exclusion of certain characteristics in these financial statements have always been a point of discussion. Thus, it becomes crucial to understand what all to include in these financial statements.

Here in our essay, we are going to discussion the application of the principal qualitative characteristics and appropriate accounting standards that result in financial statements that convey a true and fair view. The discussion makes use of the financial statements of Cadbury plc, for the year 2008. From the financial statement of the company, we can note that the company only considers its Cadbury brand in its financial records. However, there are other brands too associated with the company, which are ignored by them. Thus, it becomes crucial to understand if it is crucial to include brand in the financial records of an organization. The below section of this essay aims to answer this question at hand, further followed by conclusion at the end.


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Financial statements are the method of representation of the operating, financial and investment position of the company (Peterson & Fabozzi, 1999). These financial statements are important to demonstrate the company's health (Gill & Chatton, 1999). They demonstrate the market value of the company. Thus, companies involve in this task in a serious manner. However, it is important to note, what to include in these financial statements, and what not to include.

We are living in the Branded Age of society (Stiff, 2006). This means, that our daily activities are directly affected by the choice of products based on brand. We purchase our washing soap based on our trust on a brand; we wear clothes based on brand choice; we eat food based on brand choice. Or in all, all the things we use directly or indirectly, are consumed due to their brand value associated. This raised the point of how to valuate brand in exact (Ray, 2010). Based on the brand valuation, we can make a right decision to valuate the assets (both tangible and intangible) of the company. The intangible assets are also crucial as they are formed after huge efforts put by the company. The company shall not ignore these earnings.

However, there are some conflicting situations, which act against the importance of valuation of brand in an organization. Such as, shall the brand value be considered negative, in case of negative cash flow? Is it a good idea to share the brand value with shareholders, and stakeholders? Who is the right authority to valuate brand, internal authorities of the company, or some expert firm? These all questions raise a concern to find a fair value method by which we can valuate the brand value of an organization. The companies usually follow their own pattern of brand valuation. However, there should be some standard technique to valuate the brand. This can help a lot to understand the exact worth of the company including its tangible and intangible assets.

There are several techniques for brand valuation. The inter-brand valuation technique of UK is quite famous tool to valuate brand (Ray, 2010). However, it does not consider the estimated earnings from this intangible asset. This acts as the loophole for the technique. This is the reason, the technique failed in US (Ray 2010). The method makes use of the past earnings only, in spite of the importance of brand for future earning. However, the researchers argued that the brand value does not have an effect on the financials of an organization, and shall not be included in the financial statements, but shall only be considered when the company is sold off (Ray, 2010).

This is important to decide, whether the intangible assets such as goodwill of a company shall be included in the balance sheet or not (Ryland, 2009). Brands are an important type of intangible assets for an organization. Companies claim that brand, if acquired from other companies, shall be included in the balance sheet. However, those brands, which are generated internally, shall not be included in the balance sheets. This pattern seems to be widely in acceptance. However, some companies even valuate their own brands.

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In spite of the number of brands associated with Cadbury plc, the organization just considers its brand Cadbury in its balance sheet, and ignores the brands such as Halls and Trident, and Dentyne etc. (Cadbury, 2008). This raises an important point, what are the reasons for considering some brands, and ignoring others from the balance sheet. The brands, which are acquired after the year 1986, are only considered in the balance sheet of the company (Cadbury, 2008). Thus, the company considers brand as an important factor in their balance sheets. However, the company is of the opinion that the brand value does not depreciate with due course of time. They consider that the brand value remains fixed for indefinite period.

There are several cases, which demand the brand valuation to be of important concern. In case of merger and acquisition, 90% of the price that a company pays, is for the intangible assets of the company, of which brand forms a notable portion (Doyle, 2008). In addition, during the franchising and licensing, the company needs to valuate its brand, to decide the right rate of royalty (Doyle, 2008). This forms the new standard to understand how to valuate the brand. Cadbury too shall understand this, and valuate their brand's royalty rate that is expected in the future. Based on this, the company shall figure out the brand's value.

As per the brand valuation company, BrandFinance, located in UK; valuation of brand should be done on the royalty relief method, as its valuation based on cost incurred and that due to market valuation are not enough for appropriate valuation (Davis, 2009).

The brand has not been considered as the integrated part of the balance sheet. Organizations follow their own rules and regulations to valuate the brand. Thus, the importance of brand's worth does not become much important at present times for the shareholders and stakeholder of the company. There is the need to have some standard pattern to valuate the brand, which is of standard pattern for all the organizations. Then the brand value would become an important characteristic to determine the net worth of the company. Investors and shareholders would be able to make better decisions on looking at these figures, which investing in the organizations. The brand value would thus become an important part of the organizations' financial statements. Additionally, the finance department and the marketing department would work in a well integrated manner. The company would thus be able to generate better results for its shareholders and stakeholders. This way, Cadbury plc would be able to generate even higher revenues. The company should thus analyse the rate of royalty expected from each of its associated brands, and valuate all the brands accordingly in its financials statements.


We can conclude from above discussion that there are various aspects associated with financial statements of an organization. These are covered in the financial statements, to make a better analysis of the statistics of an organization. Additionally, brand, which is one of the most important aspects of sales and marketing department, is important to consider. Similar is the case here. Cadbury plc has considered its brand Cadbury in its financial statements. The organization considers this brand as an important aspect for valuation. This helps in increasing the shareholder value of the organization. Thus, it might attract investments as well. Thus, the organization shall be appreciated for its consideration of Cadbury brand in its balance sheet. However, we have seen that the organization has ignored some other brands of them.

This shows that for an organization, some brands are important to valuate in balance sheet, while others are not. The discussion also suggests that the brands, which are created there within an organization, shall not be included in the financial statements. However, those acquired from other organizations shall be considered in these financial records. This way, an organization can demonstrate its right set of assets there within.

The companies are suggested to consider the brand in their financial records, whether acquired from other sources, or generated from there within. For this, the company shall evaluate the expected rate of return from the brands and consider them in the financial statements. These values might vary with the passage of time. This way, the companies would be able to make better decisions in their valuation and merger and acquisition techniques. The right estimation of company's financial assets would be made in this approach, considering both qualitative and quantitative assets.


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Cadbury (2008), Cadbury PLC: Financial Statement, Available online at http://cadburyar2008.production.investis.com/en/siteservices/~/media/Files/C/cadbury-ar-2008/pdf/financial-statement/financial-statements.ashx [Accessed on 3 December 2010]

Dan Stiff (2006), Sell the brand first: how to sell your brand and create lasting customer loyalty, McGraw-Hill Professional, ISBN: 0071470425, 9780071470421

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James P. Catty (2010), Wiley Guide to Fair Value Under IFRS, John Wiley and Sons, ISBN: 0470597364, 9780470597361, 255-267

John Andrew Davis (2009), Competitive Success, How Branding Adds Value, John Wiley and Sons, ISBN: 0470998229, 9780470998229, 44-48

Kamal Ghosh Ray (2010), Mergers and Acquisitions: Strategy, Valuation and Integration, PHI Learning Pvt. Ltd., ISBN: 8120339754, 9788120339750, 188-190

Pamela P. Peterson, Frank J. Fabozzi (1999), Analysis of financial statements, Analysis of financial statements, 54(1), 25-27

Peter Doyle (2008), Value-based marketing: Marketing strategies for corporate growth and shareholder value, John Wiley and Sons, 2nd edition, 335-339

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S. B. Costales, Géza Szurovy (1993), The guide to understanding financial statements, McGraw-Hill Professional, 2nd version, 8-10



In Cadbury plc financial statements 2008 prior to its acquisition by Kraft Inc. there was a significant value of its brands which could not be capitalised. In an extract from its 2008 financial statements it states ' the main economic and competitive assets of the Group are its brands, including the Cadbury brand, some of which are not on the balance sheet are these are internally generated' Cadbury Financial Statements 2008. This is in line with IAS38, Intangible Assets

However, it also states that 'the group is a brand business and expect to acquire, hold and support brand for an indefinite period.'

The Framework for The Framework for Preparation and Presentation of Financial Statements states that the 'application of the principal qualitative characteristics and appropriate accounting standards result in financial statements that convey.....a true and fair view'. Explore this statement in light of the information above from Cadburys Financial Statements.