Introduction
A trade name is a non pecuniary and a physically nonexistent plus, a trade name is chiefly associated with the name or the emblem of a given entity. The trade name usually gives the consumer a sensible confidence that the merchandises produced under the trade name are up to the outlooks of the client and nil less ( Roos 1997, pd33 ) . The consumer outlooks are usually cumulative i.e. they build up over clip. A trade name can non be in the event that the merchandise does non perpetrate itself to the internally developed values ( Roos 1997, pg 52 ).
The trade name of a given entity is like an ultimate creative activity which ahs a value in thee market and the values at which the trade name is traded is non automatically calculated. In order to find the pecuniary value of a given trade name there are some series of procedures which are carried out the procedures are both direct and indirect. An indirect procedure will seek to give the value of the trade name sing what the trade name gives in add-on to the current underside line ( Roos 1997, pg 52 ) .
A trade name is really valuable plus for a given concern ( Baruch 2004, pg 126 ) . The trade name is an emblem or name that is associated with the attitude of the purchasers towards the goods and services of a given bargainer ( Baruch 2004, pg 126 ) . The trade name identifies the services and goods of a peculiar concern adult male and sets them aside from the services and goods presented by the rival ( Baruch 2004, pg 126 ).
The trade name gives the merchandises and services a alone nature which sets them aside from those of the rival ( Baruch 2004, pg 126 ) . The trade name does this by indicating out certain qualities in the merchandises that are non the same as the rivals ‘ ( Baruch 2004, pg 126 ) . A trade name is really of import to a given concern since it can be termed as an ultimate selling tool that can be used to contend competition and keep the place of a given merchandise in the market ( Baruch 2004, pg 126 ) .
The issue of trade name rating came up in the late eightiess ‘ when the ” moving ridge of trade name acquisitions ” and led to the realisation of the value held by some of the branded entities in the society ( Lev 2001, pg 66 ) . One of the chief acquisitions that took topographic point was the taking over of Rowntree by Nestle and the acquisition of Nabisco ‘s European concerns by Danone ( Lev 2001, pg117 ) . The sum of geting a company whose trade name is high was really high compared to those low branded companies. The high acquisition sum led to the addition in good will at acquisition ( Lev 2001, pg117 ) . This good will constituted intangible assets which included trade names, rational belongings, Patents and distribution understandings ( Lev 2001, pg117 ).
More and more companies are detecting the importance of valuing their intangible assets. The companies are besides detecting the verve of protecting their trade names ( Accounting rules board 1970 ) . The companies use the trade name to inform the consumers of the quality attached to their merchandises ( Accounting rules board 1970 ) . This is really of import since consumers need a merchandise that they are familiar with and one which they trust and can trust upon to maximise their public-service corporation. a concern with a strong trade name will bask such an environment since their gross is expected to lift and are besides expected to keep a certain market portion due to consumer trueness created by the trade name ( Accounting rules board 1970 ).
Aims and research inquiries
This research is chiefly based on the rating and revelation of information with respect to intangible assets and trade names. The chief aims of the research include:
- To set up the demand for rating and presentation of information refering intangible assets. This aim aimed at giving the ultimate ground for valuing and presentation trade names and other intangible assets such as rational belongings in the fiscal statements of an entity.
- To set up the demand for rating and presentation of information refering intangible assets. This aim aimed at giving the ultimate ground for valuing and presentation of intangible assets including trade names, patents and rational
- To analyse the most effectual trade name rating methods.
- To guarantee that companies present their fiscal place in a true and just mode by guaranting all assets which bring benefits to the company are included in the fiscal statement of the company.
This is to guarantee that the fiscal statements reflect the right fiscal place of the company This research paper seeks to reply inquiries environing the accounting constructs with respect to development, importance, restrictions, and impacts of rating of intangible assets and trade names. The chief research inquiries that are answered in this paper include.
Is at that place any benefit that a peculiar entity gets in valuing its trade name and other intangible assets? The research paper besides seeks to reply the inquiry, what are the assorted obstructions environing the procedure of rating and presentation of fiscal information refering trade names and intangible assets? Other research inquiries which the paper seeks to reply include:
- Who are the users of information generated after the rating of trade names and intangible assets?
- What are the chief grounds for valuing trade names and other intangible assets?
- What are the most normally used intangible assets and rating methods?
Methodology and methods
The chief purpose of this paper is to present information with respect to rating and presentation of information sing trade names and intangible assts. In the paper we are traveling to analyse the methods used to value trade names and intangible assets. The paper is traveling to utilize treatment methods to reply the above stated research inquiries. Each inquiry will be discussed in item and information required disclosed.
The research is carried out utilizing both qualitative and quantitative informations aggregation methods. The information collected will be analyzed so as to sync with r he research aims therefore replying the research inquiries. The research paper will besides use the usage of practical information and illustrations by usage of instance surveies. The research paper will utilize the undermentioned companies as practical illustrations since they are known for acknowledging the value of their trade names and intangible assets while showing fiscal statements.
The above companies present fiscal information about their intangible assets and trade names. The companies value all their assets harmonizing to the criterions prescribed by IAS 38, IAS 36, and IFRS 3. Lougborough University is a non-profit-making devising establishment. The university has of late displayed fiscal place and public presentation which go manus in manus with the purposes and aims of the establishment. If we take a expression at the establishment ‘s 2010 fiscal statements they show the ability of the institute to run into its long term maturating aims. The company shows the net book value of intangible assets such as good will. The university has a strong trade name name and enjoys good fiscal and operation place.
An Osem investing is non a publically listed company ; therefore it has no any statutory demand directing it to print its fiscal statement for public examination. However, due to its trade name place in the market the company finds it necessary to bring forth the statements for public examination. The fiscal statements presented hence do non reflect the statutory prescriptions of showing fiscal statements. Following gen group PLC is a company concerned with the fabrication of a biomarker
Accounting criterions for rating of Brands and intangible Assetss
The chief accounting policies concerned with recording and rating of trade names and intangible assets are IAS 36, IFRS 3 and IAS 38.The development of accounting criterions with respect to rating and recording of trade names and intangible assets can be traced back in the twelvemonth 1977 in the month of February ( Accounting criterions board 1996 ) . This is the twelvemonth which the exposure Draft E9 which addressed Accounting for Research and Development activities was formed.
The bill of exchange evolved over the old ages until the twelvemonth 1998 when it was referred to as IAS 38 intangible assets ( Accounting criterions board 1996 ) . IAS 38 was revised in the twelvemonth 2004 and in the twelvemonth 2008 it was amended in order to integrate criterions for one-year accounting, it was so recognized as IFRS 2007. In the twelvemonth 2009 it was revised for Annual betterments to IFRS 2009 ( Accounting criterions commission 2010 ) .
The chief aim of IAS 36 is to supply processs to be followed by a given concern entity with respect to the rating of an plus ( Accounting criterions commission 2010 ) . The Standard ensures that an plus is non recognized at a value that is higher than the value which if sold will be recovered i.e. the plus ‘s recoverable sum. The standard provinces that any damage in a given plus should be recognized by the entity ( Olson 1998, pr 2 ) .
The criterion besides emphasizes on revelation with respect to plus damage and any signifier of contrary done on an impaired plus. To ease the above, the standard prescribes ways to ; detect an impaired plus, rearward damage of a peculiar plus, and mensurating impairment loss ( Olson 1998, pr 2 ) .
The chief aim of IAS 38 is to give the manner intangible assets such as good will and rational belongings can be recorded in fiscal statements ( International Financial Standards board 2010 ) . The standard states the manner intangible assets non catered for in other fiscal coverage criterions can be treated when it comes to presentation of accounting information ( International Financial Standards board 2010 ) . The standard prescribes the conditions which a given plus must run into so as to be recognized by a given entity ( International Financial Standards board 2010 ) .
The standard provinces that, such an intangible plus should be recognized y the concern at the event that all the conditions are met. The criterion besides prescribes the processs to be followed when it comes to rating of a given intangible plus so as to uncover the current sum International Financial Standards board 2010 ) . The criterion besides states the signifiers of revelation that need to be done with respect to a given intangible plus ( International Financial Standards board 2010 ) .
The standard defines an intangible plus as a non pecuniary plus which does non be physically ( International Financial Standards board 2010 ) . The standard farther provides the features of an intangible plus as one which is expected to convey economic benefits to the concern in future, can be identified and one which the concern entity can exert control and the entity have the ability to reap the economic benefits from the plus at any clip ( International Financial Standards board 2010 ) .
IFRS 3, concern combination, the chief aim of this Financial Reporting Standard is to order the accounting processs to be followed by an entity when it decides to take up concern combination ( International Financial Standards board 2010 ) . Business combination is the consolidation of several separate concern entities in order to come up with one entity giving showing the fiscal information i.e. describing entity ( International Financial Standards board 2010 ) .
The individual geting the concern assumes control of the acquired concern ( International Financial Standards board 2010 ) . However, if the individual acquires an entity which is non a concern such can non be deemed as a concern combination ( International Financial Standards board 2010 ) .
Evaluation Approachs
Peoples have really different point of views with respect to the definition of the term ‘value ‘ this makes it difficult to understand the construct degree Fahrenheit value. The rating applied is greatly dependent on the chief purpose of transporting out the rating ( Stenson 2003, pg 251 ) . The chief purpose of a rating is decided by the concluding usage of the information obtained from the rating ( Stenson 2003, 243 ) .
Cost based attacks
The cost based attacks are chiefly concerned with the costs that the entity will incur when it comes to trade name creative activity or permutation ( Stenson 2003, pg 251 ) . The costs include the costs incurred with respect to research and development, publicity of the merchandises associated with the new trade name, proving the new trade name in the market and betterment of the merchandise so as to accommodate the new trade name ( Aakar 199, pg 86 ) . This signifier of attack amounts up all the cost incurred to get the new trade name or replace the bing one and uses it as the value of the bing trade name or the trade name that is yet to be implemented. This is one of the easiest signifiers of trade name rating since all the information required to transport out the operation is available ( Stenson 2003, pg 86 ) .
However, this signifier of rating does non present any likelihood to the existent economic value ( Stenson 2003, pg 86 ) . The replacing cost attack determines the cost that would be incurred in replacing the bing trade name with another trade name, this can be done in the event that the entity realizes the current trade name has been damaged ( Stenson 2003, pg 86 ) . This method is more advantageous since it gives the existent value of the trade name ( Stenson 2003, pg 86 ) .
However, the value generated in this attack does non give the predominating market value ( Stenson 2003, pg 86 ) .This may misdirect investors since the value if the plus were sold it may hold a higher value or lower value compared to the sum depicted by the attack ( Stenson 2003, pg 86 ) .The chief advantage of this attack is that the director responsible has the full cognition of the money used with respect to creative activity of the new trade name or replacing of the bing trade name ( Stenson 2003, pg 86 ) .
Market-based attacks
The market based attack is chiefly concerned with the predominating market value of the trade name or intangible plus ( Stenson 2003 ) . This is the existent sum which the plus would be sold for if the entity decides to make so. The unfastened market value is defined as the highest sum which a given purchaser who is willing to get the intangible plus will pay. This definition does non include a purchaser with other aims ( Stenson 2003, pg 86 ) . This rating attack is much effectual when 1 is at the brink of selling the trade name or intangible plus.
The predominating market value of the intangible plus or trade name should incorporate other utilizations for the plus, future economic benefits of the plus. The value should besides include the value of the intangible plus with respect to the current activities. Harmonizing to Stenson ( 2003 ) , “modern fiscal theory provinces that one should sell off the assets if the value that the purchaser is willing to pay exceeds the discounted benefits of the trade name or intangible plus ” , ( Stenson 2003, pg 86 ) .
Economic Use attacks
The economic usage attack tends to utilize the future benefits of the plus so as to find the current value of the intangible plus ( Guilding 2002, pg 42 ) . This attack evaluates the hereafter incomes to the entity which can be straight identified with the plus so as to find the current value of the plus ( Guilding 2002, pg. 43 ) . This signifier of attack is really effectual when it comes to rating of assets which are non intended to be sold in the close hereafter. This attack depicts the future importance of the trade name or intangible plus that the entity is presently basking ( Guilding 2002, pg. 48 ) .
The value generated by this attack can be of import to the entity if it is compared with the predominating unfastened market value the entity is able to cognize, what future potency of the plus is being foregone by taking to use the plus at the minute ( Guilding 2002, pg. 59 ) . Formulary attacks apply several conditions so as to come up with the value of the intangible plus ( Guilding 2002, pg. 59 ) .
The particular state of affairs attacks put into history a peculiar state of affairs related to the trade name rating, the state of affairs does non hold to be consistent with the current ratings that affect the trade name internally and externally ( Bradley and Vishwatahan 2006, pg 451 ) . ) .
In this attack a willing purchaser will ever hold the purpose to buy the plus at a higher monetary value than the market value of the plus ( Bradley and Vishwatahan 2006, pg 451 ) . While valuing the intangible plus or trade name utilizing the particular attack, it is of import to set into consideration the regulations and guidelines set Forth by the governments, some of the particular intents for valuing an plus include income revenue enhancement ( Bradley and Vishwatahan 2006, pg 451 ) .
Obstacles to trade name and intangible assets rating
A past conducted survey with respect to rating of trade names shows that one of the chief jobs associated with trade name rating is the handiness of many trade name rating methods. The application of different rating methods may ensue to presentation of different results ( Robbin 1991, p 56 ) . The discrepancy with respect to such results can be material ( Robbin 1991, p 56 ) . Another job with respect to the rating of trade names is the deficiency of a manner to find the figure of old ages the trade name can be before it to the full depreciates i.e. the utile life ( Robbin 1991, p 56 ) .
The rand value can non besides be determined by presenting a given trade name in the market ( Robbin 1991, p 56 ) . Another obstruction with respect to trade name rating is that, there are many theoretical accounts which have presented by bookmans to be debated upon ( Robbin 1991, p 56 ) . Another job with respect to trade name rating is that, the intangible plus of a given entity are treated as whole hence it is hard to divide the trade name capital from the other assets in the same class such as good will ( Robbin 1991, p 56 ) . There is no universally accepted trade name rating method ( Marsh 2001, pg 7 )
From the above we are able to recognize that it is of import for a given entity to closely analyze its intangible assets. The valuers should be able to measure all the intangible assets so as to acquire the chance to infer the impact which the trade name has on the current place of the entity in the market ( Marsh 2001, pg7 ) . This is besides because there is many intangible assets in an organisation which impact on the entity ‘s market place ( Marsh 2001, pg7 ) .
Importance of Brand Valuation
More and more companies are detecting the importance of valuing their intangible assets. The companies are besides detecting the verve of protecting their trade names. The companies use the trade name to inform the consumers of the quality attached to their merchandises. This is really of import since consumers need a merchandise that they are familiar with and one which they trust and can trust upon to maximise their public-service corporation ( Andrews 2006, pg 34 ) . A concern with a strong trade name will bask such an environment since their gross is expected to lift and are besides expected to keep a certain market portion due to consumer trueness created by the trade name ( Andrews 2006, pg 34 ) .
It is of import to calculate the value of assets contributed by the trade name. It is besides of import to value other intangible assets being held by the company such as good will and rational belongings ( Andrews 2006, pg 34 ) . It is of import to value intangible assets such as trade names by a company since it helps the company find its place with respect to competition in the industry which the company is runing. The rating of the trade name will give the company the cognition whether to better its trade name or non so as to suit in the competition. The rating of the trade name besides gives the company the ability to weigh their rivals ‘ potency to replace them in the market portion they occupy ( Andrews 2006, pg 34 ) .
There are several unfavorable judgments pointed towards trade name rating chiefly by private companies. Fiscal information presented without the inclusion of the intangible assets of the company is misdirecting since they do n’t uncover the true fiscal place of the company ( Andrews 2006, pg 34 ) . This means that trade name rating is really of import since it gives the right fiscal place of the company ( Andrews 2006, pg 34 ) .The rating of intangible assets is really critical since the company is able to measure its current liquidness and make up one’s mind whether it is a traveling concern or non ( Andrews 2006, pg 34 ) . The rating of a peculiar trade name is really of import since the company is able to cognize its degree of consumer trueness ( Andrews 2006, pg 34 ) .
Methods of Brand and Intangible Assets Valuation
Many writers have come up with trade name and intangible assets rating methods. The largely used trade name rating methods include ; the trade name value of a company can be valued by mensurating the predominating market monetary value of the company ‘s portions ( Chan 2001, pg 163 ) . The trade name value can besides be determined by ciphering the difference between the market value of the entity ‘s portions and the net book value of the company ‘s portions. The result is referred to as good will ( Chan 2001, pg 163 ) . The company can besides set up its rational belongings by deducting the direction expertness from the difference between the predominating market value and the net book value of the concern ‘s portions ( Chan 2001, pg 163 ) .
The value of the trade name can be determined by ciphering the costs that the company will incur if the latter chooses to replace the bing trade name with a new trade name ( Chan 2001, pg 163 ) .The costs incurred during trade name replacing may include the advertizement of the new trade name so as to enable the trade name get its initial market place ( Chan 2001, pg 163 ) .The costs incurred during trade name replacing or geting of a new trade name can be deemed as the value of the trade name ( Chan 2001, pg 163 ) .
The Purpose of Brand Valuation The demand to value trade names is lifting by twenty-four hours. The company may hold different grounds as to why to value the intangible assets of the company ( Aboody 2004, pg. 57 ) . The company may value its intangible assets with the purpose of selling them. It is of import to value the assets before selling them so as to recognize the market value of the plus ( Aboody 2004, pg. 58 ) .
The company should besides value the assets before selling so as to set up the future benefits of the plus. The company may besides take to value the intangible assets so as to expose the assets in the statement of fiscal place of the company ( Aboody 2004, pg. 58 ) . The company needs to value the intangible assets so as to cipher the accrued depreciation so as to make up one’s mind the current net book value of the intangible plus. The figure below shows a diagram of a company valuing assets for the intent of selling Beginning ( Bradley and Vishwatahan 2006, pg 450 ) .
The figure above shows a concern with the purpose of selling its knowing plus. The figure shows the rating of the intangible equity of Consumer Goods Company. The company ‘s direction computed the value of the company ‘s prevailing market portion and found out the value to be 838 million Euros ( Bradley and Vishwatahan 2006, pg 451 ) .
The company purchasing the securities sing the future benefits of the securities and found out the value to be 1.3411 billion Euros, the difference between the two companies ‘ monetary values occurred due the trade name ‘s current good place in the market and other production, gross revenues and distribution operating expenses ( Bradley and Vishwatahan 2006, pg 451 ) . After deducting all operating expenses associated with the portions the good will and intangible assets of the company turned out to be 337 million Euros However, after the rating the trade name, it was evident that the trade name value depended on the individual who is traveling to profit from the high trade name value i.e. for whom ( Bradley and Vishwatahan 2006, pg 451 ) .
Who uses the rating information?
The information generated after the rating of intangible assets and trade names have a broad scope of users. The information can be used by individuals willing to purchase the portions of the company ( Ulrich 2004, pr 10 ) . The purchasers will necessitate this information so as to measure the future place of the company so as to make up one’s mind whether to purchase the portions or non. This information is besides really critical to the purchaser since it enables him to cognize what economic benefits will accrue to him in the hereafter if he acquires the portions ( Ulrich 2004, pr 10 ) .
The intent of valuing intangible assets is greatly related to the individuals who need the fiscal information ( Ulrich 2004, pr 10 ) . The other group of individuals who need the information generated after rating is the direction of the organisation since them to measure the liquidness and future place of the company ( Ulrich 2004, pr 10 ) . The information is besides of import to the direction since it gives them the ability to analyse the degree of consumer trueness ( Ulrich 2004, pr 10 ) . The information is besides used by the general populace in the instance of a company listed in the stock exchange ; the populace is able to entree the current fiscal place and future fiscal place of the company. In order for the populace to utilize the fiscal information presented by the company, it is of import to guarantee that all the information with respect to the wealth of the company is disclosed ( Ulrich 2004, pr 10 ) .
Finally, the information is of import to the whole company since it give them the chance to analyse their place in the market and current place since it gives them the ability to find the value of the rational belongings, good will and trade name that the company enjoys ( Ulrich 2004, pr 10 ) .
Nextgen group PLC
The company is an investings company ( Bradley and Vishwatahan 2006, pg 451 ) . The company presents its fiscal information giving comprehensive coverage about its place with respect to the intangible assets it controls, the company presents the information after thorough rating of the value of the intangible assets it controls, and this includes the good will and other rational belongings being controlled by the company ( Bradley and Vishwatahan 2006, pg 451 ) . The good will is represented in the amalgamate statement of fiscal place and has the undermentioned effects on the place of the company ( Bradley and Vishwatahan 2006, pg 451 ) .
Osem investings limited
The company is an investings company ( Damodaran 1996 ) . The company presents its fiscal information giving comprehensive coverage about its place with respect to the intangible assets it controls, the company presents the information after thorough rating of the value of the intangible assets it controls, and this includes the good will and other rational belongings being controlled by the company ( Damodaran 1996 ) . The good will is represented in the amalgamate statement of fiscal place and has the undermentioned effects on the place of the company ( Damodaran 1998 ).
Lougborough University
The university has a really strong trade name name and enjoys a good fiscal place ( Damodaran 1996 ) . However, the presented statement of fiscal place does non reflect the existent value of the concern assets this is because the statements do non include the value of intangible assets controlled by the concern. This company hence does non bask the benefits which accrue due to rating of intangible assets ( Damodaran 1994, pg 24 ) .
Decision and hereafter plants
The issue of rating of intangible assets has greatly evolved since its origin in the twelvemonth 1980. It is of import to value the intangible assets and trade names of a given entity so as to come up with the existent value of the assets controlled by the concern ( Damodaran 1994, pg 24 ) . There is still much to be done in the hereafter with respect to the methods used in transporting out the procedure of trade name rating. Standards should be developed so as to guarantee that there is a more conventional mode of transporting out the procedure of trade name rating ( Damodaran 1994, pg 24 ).
Evaluation of trade names and intangible assets of a company is really of import since it gives the existent fiscal place of the company. The company uses the information generated from the rating of its trade names to judge its place with respect to consumer degree and competition in the industry within which it is runing ( Damodaran 1994, pg 24 ) . Therefore the importance of trade name rating can non be underestimated since a company needs to value its trade name so as to make up one’s mind what the following measure is with respect to publicity of its merchandises. Therefore it is safe to state that trade name rating besides affects the selling schemes to be employed by the company.
