The task of measuring brand value is complex in nature

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Internally generated brand names: Some types of internally generated intangible non-current assets can be recognized in the statement of financial position if they meet specific criteria; however, IAS 38 specifically states that internally generated brand names should not be recognized as assets under any circumstances.

All expenditure will be charged to profit or loss in the year it was incurred.

Branding is used by a company as a means of differentiating its product(s) from the competition. A well established and reputable brand name can enable a company to charge higher prices for products that, apart from the branding, appear identical to those of competitors. Branding can therefore be used to raise product profitability.

----------------------------------------------------------------------------------------------------------------Brand name is a trust mark and a promise of quality and authenticity that clients can rely on.

It is not created overnight. It is the result of relentless pursuit of quality in manufacturing, selling, service, advertisement, and marketing. It is an integral part of quality that the client experiences in dealing with the company and its services over a sustained period.

The task of measuring brand value is complex in nature. Several methods are available for accomplishing the task. The most widely used is the brand earnings-multiple model. For example, according to The Business Week/Intrabrand annual ranking of the world's most valuable brands conducted and published in August 2004, Coca Cola was valued at the most valued brand in the world for the year 2004 at $ 67.4 billion when its market capitalization was 106.5$ billion. Thus, the brand valuation of Coca Cola was around 63 per cent of its market capitalization on the date of valuation.

(Anil, 2007)


A brand is a name given by an organisation to one of its products and which is used in the marketing of that product. For this reason, brand names are often more well- known than the name of the organisation, making the product. This familiarity may lead to customer brand loyalty, which will result in future sales. Clearly, this is valuable to the organisation and the brand should therefore be accounted for as an intangible non- current asset. (p. 155)

Non purchased (internal) good will (change to brand name) is not recognized in the balance sheet. The reaction for this is not possible to obtain a reliable measurement of its value. In the case of purchased goodwill, the fact that someone has paid for goodwill does mean that it has a value and this can be measured by the price paid. In this case of internal good-will, there has been no such external transaction and there is no basis on which the internal good will can be valued.

(Lunt, 2008)

The Enron crisis highlights the importance of intangibles and demonstrates that their value can be manipulated and destroyed as there are insufficient standards and guidelines available for references.

Jay Chatzkel (2003), the collapse of Enron and the role of intellectual capital, Journal of Intellectual Capital, Vol. 4 No. 2, pp. 127-143.


Leo, K. (1999 analyses selected sections of IAS 38 , "Intangible Assets" which have not been well received by accounting profession and business organizations. The International Accounting Standards Committee (IASC), in principle, agrees that there should be no difference between intangible assets acquired from external sources and those generated internally. However, the gaps in terms of accounting treatment for these two assets as per detailed in IAS 38 are obvious. The author is of the opinion that if these gaps are narrowed or eliminated, it would address the many criticisms raised by accounting and business organizations on IAS 38.The first area of inconsistency is in the measurement of initial recognition. IAS 38 states that an intangible asset should be measured initially at cost. However, if the intangible asset is acquired as part of business combination and can be identified separately from goodwill, it can be recognized by the business organization at fair value. Hence, initial recognition at fair value is an additional option for acquired intangible assets but not for internally generated intangibles.

Second, IASC reasons that it is difficult to determine the fair value of intangible assets in the absence of an active market. Nevertheless, for acquired intangible assets, acquirers have the option of measuring fair values using various measurement techniques offered by accounting firms and consultancy groups. Measurement of fair value of internally generated intangibles is practically impossible, as technically there is no active market for these assets.

Ken Leo (1999), "Intangible assets: seeking consistency", Australian CPA, Nov, Vol. 69 No. 10, pp. 30-32.


The competitive advantage of a successful brand name is a valuable asset for the firm owning the brand. The value of this advantage is indicated by the money paid by firms that have acquired consumer package goods with strong brand names. Since 1986, there has been a frenzy of mergers and acquisitions in which brands have played primary roles. Brands are important to firms because they lead to customer loyalty which in turn ensures demand and future cash flows. The brand also captures the promotional investment overtime. Therefore, it is not surprising that the primary capital of many businesses is their brands.

Motameni. R, Shahrokhi. M, (1998) Brand equity valuation: a global perspective, Journal of product and brand management, vol. 7 no.4, pp 275-290

Accounting for brand valuation is a relatively recent development in financial reporting. In the middle of the 1980s, Interbrand company, a consultancy organization, conducted the first ever brand valuation service for Rank Hovis Mc Dougall (RHM) company.

Interbrand company succeeded in their accounting treatment in presenting the worth of the company's brand as an asset on the balance.

The professional bodies have appeared uncertain as how to resolve the issue of brand valuation. It happens because of the lack of understanding and guidance over accounting treatment of brands. Much of the uncertainty associated with brands is regarding the relationship with goodwill and other intangible assets.

There is real confusion about the distinction between brands and other assets such as goodwill or trademark. This difficulty leads to further problems when deciding how to measure and report them in financial statements.

Some of the companies have gone further by capitalizing not only "acquired" brands but also the "home-grown" brands. For example, a UK company, RHM included the value of £ 678 million for all its brands on the balance sheet. The amount of money also included the "home-grown".

The research paper has provided us with a strong fact that the difficulties caused by brand classification have brought out many problems and much confusion with the internal and also the external use of financial statements.

To assess the value of brands, there are several methods to be followed: cost-based approach, market-based approach, income-based approach, formulary approach.

For the income-based approach, it is the most conceptually elegant valuation approach because the value is the present value of the expected income that can be generated through the ownership of the brand. This method is applicable to many types of economic analyses, such as damages analyses, event analyses and royalty rate estimation that rely greatly on this approach.

Seetharaman. A, Nadzir Z. & Gunalan S. (2001), A conceptual study on brand valuation, Journal of Product and Brand management, Vol. 10 No.4 pp. 243-256


Accounting for brands refers to the task of incorporating brands in the balance sheet. This has proved a problematic exercise due to the difficulties in identifying the values at which brands might be included among an enterprise's assets.

The critical case of "home grown" brands remains unchanged. In the normal course of events, incorporating valuations for such brands remains proscribed on the grounds of lack of reliability.

Roslender. R, Hart. S, (2006) Interfunctional cooperation in progressing accounting for brands, Journal of Accounting & Organisational Change, Vol. 2 No. 3, pp. 229-247

In that article, management was shown to be poorly informed by the absence from the balance sheet of financial information on valuable internally created intangible assets, such as brands, patents and software.

The value of intangible assets contributes to closing the gap between the balance sheet value of a business and its market value. As providers of financial information there is a duty upon accountants to attempt to bridge this gap for the benefit of those who would wish to obtain as comprehensive a picture of a business as is possible from such information. To be fair to accountants the gap will never be completely bridged because the financial statements have never purported to fully represent market value. Anyway, market-based financial statements would be affected by unpredictable factors such as market growth, perceived quality, technological innovation and so on. This does not mean that the gap should be ignored or that accountants should retreat to the relative security of intangible asset recognition based upon ``transactions or events'', particularly where this basis for asset recognition is found to be unduly restrictive. Further, the questionnaire survey shows that accountants themselves are aware of their failure to recognise and capitalise many internally created intangible assets.

Regardless of whichever measurement method best portrays economic reality; there is an inconsistency in accounting treatment which must, therefore, raise doubts about the logic of the above linkage. For example, purchased brands can be capitalised whereas internally created brands are seldom capitalised because it would appear they do not, initially, arise from a transaction or event. This inconsistency is also readily acknowledged by respondents with 74 per cent of them agreeing that internally created brands or software are assets irrespective of whether they arose from a transaction or event.

Tollington. T (2000), The cognitive assumptions underpinning the accounting recognition of assets, Journal of Management Decision, Vol.38 No.2, pp. 89-98


However, in view of the RHM plc case, it also seems likely that some companies may do the opposite and seek to convince their auditors that there is a contradiction in recognising purchased brand assets whilst, at the same time, not recognising internally created brand assets within the same company.

Tollington (1998c) regard as an unnecessarily restrictive accounting definition of an asset.

Once legal recognition of a brand is embraced consideration can then be given to valuation methods which are themselves problematic. They comprise the following: price premium, earnings valuation, royalty payments, market values and historic cost methods.

It is clear from the above brief critique of the main brand valuation methods that they lack consistency, that is, a lack of general agreement on methodology, and subjectivity at every stage of the valuation process.

There is very little consistency in the limited brand valuation/accounting practices taking place at the present time. However, this should not be regarded as a call to retrench into the relative safety of asset recognition based solely on a ``transaction or event'' or measurement based upon ``initial recognition'' (both terms already explained above) but as a challenge to find alternative ways of recognising problematic intangible assets.

There is also a serious need for accounting profession to relook at the current regulations to ensure that financial data truly reflect the market value.

It is time for the accounting profession to find new ways of recognising intangible assets in addition to a transaction or event (Tollington, 1998c), to define and recognise purchased and internally created brand assets in their own right (Tollington, 1998a) independently of goodwill (Tollington 1998b)

Tollington. T (1999), The brand accounting side-show, Journal of product & brand management, Vol. 8 No.3, pp 204-217.


If the existing asset recognition boundary is too restrictive then this is likely to result in an incomplete view of the balance sheet. For example, in respect of intangible assets, Grand Metropolitan plc capitalises (as an asset on its balance sheet) the purchased "Burger King" brand asset whilst excluding the internally created or "home-grown" "Croft" sherry brand asset. The selective capitalisation of purchased brands alone usually arises from the definitional requirement (Appendix 1) for the recognition of an asset to be based upon transaction or event, a basis which is largely inappropriate for the recognition of internally created or home-grown brands. This, in turn, results in an incomplete view of the balance sheet because it can be argued that, whether purchased or not, if both of the above brands are capable of producing wealth then there is a prima facie case for both of them to be recognised on the balance sheet.

One suspects that the level of distortion, particularly in respect of internally created assets, is becoming increasingly problematic for the accounting profession. This is a point worth exploring further by looking at alternative ways in which recognition of an asset could take place other than on the basis of a transaction or event.

Tollington, T. (1998) Brands: the asset definition and recognition test, Journal of Product & Brand management, Vol. 7 No. 3, pp. 180-192


FRS 10, Goodwill and Intangible Fixed Assets, categorically assets that only purchased goodwill should be recognized in the accounts. The main reason for excluding non-purchased goodwill is that its value is subject to wide fluctuation due to both internal and external circumstances, making any assessment of its worth highly subjective and problematic. It is probably the right conclusion.

Money measurement concept:

A business asset is reported in balance sheet only if its value can be measured in money terms with a reasonable degree of precision

Prudence concept: Concept of conservatism,

It is important, however, not to take the prudence concept too far. Where there are number of likely outcomes it is usually choose the lower figure, but profit should not be deliberately understated. Accounting statements are used as the basis for decision - making, and they should contain realistic, not excessively pessimistic, financial information. Understatement can be just as misleading as overstatement and, though the potential loss from the misallocation of resources that may result is less, losses can be minimized by prepares of accounting-reports exercising no more than a reasonable level of caution.

(Marriott et al., 2002)


When accountants are uncertain about judgements or estimates they must make, which is often the case, they look to the convention of conservatism. This convention holds that when faced with choosing between two equally acceptable procedures, accountants should choose the one that is least likely to overstate assets and income.


Accounting statements should contain only those financial facts that are material, or relevant, to the decision being taken by the recipient of the report.

(Needles et al., 2007)

Historic cost convention:

The historic cost convention holds that the value of assets shown on the balance sheet should be based on their acquisition cost (that is, historic cost).

(Atrill and McLaney, 2008)

The intangible non-current (fixed) asset which has attracted most accounting-related comment in recent years has been the brand name of a company's product. When a company works over many years to develop the reputation of its product, that reputation creates an expected future benefit for the company and meets the definition of an asset. However, the generally held view is that it should not be recognized in balance sheet because it fails the recognition test. The conventional argument is that there is no measurable cost of the reputation gained by the brand name and the value cannot be measured with reliability.

The IASB has issued a standard, IAS 38, covering accounting for intangible assets. Internally generated brand names must not be recognised as intangible assets. This rule applies to similar assets such as publishing titles, customer lists, or newspaper title. Purchased brand names or trademarks or patents may be reported in balance sheet if they meet the conditions for recognition.


An asset is defined as:

A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

An asset is recognized in the balance sheet when:

It is probable that the future economic benefits will flow to the entity and the asset has cost or value that can be measured reliably.

(Weetman, 2006)

An entity will not be permitted to recognise internally generated brands. This is because the view that expenditure on internally generated brands cannot be distinguished from the cost of developing the business as a whole and it will therefore not permit recognition of these items as assets.

IAS 38 and FRS 10 (December 1997)