Intangible Assets
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
05 February 2010
Hi Sir,
My Company has self generated brand which it wants to be shown in the books So,
Can you please tell me how can we value and show such an intangible Asset in our books ?
My Company has self generated brand which it wants to be shown in the books So,
Can you please tell me how can we value and show such an intangible Asset in our books ?
05 February 2010
I feel that self generated brand fall under the category of goodwill (intangible assets) and hence cannot be shown in the Books of Accounts.
This is as per clause 35 of AS26.
However, I would request views of other experts.
This is as per clause 35 of AS26.
However, I would request views of other experts.
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05 February 2010
I feel that self generated brand fall under the category of goodwill (intangible assets) and hence cannot be shown in the Books of Accounts.
This is as per clause 35 of AS26.
However, I would request views of other experts.
This is as per clause 35 of AS26.
However, I would request views of other experts.
Querist : Anonymous
Querist :
Anonymous
(Querist)
05 February 2010
Hi Sir,
Thank You Sir for your reply
I studied AS 26 and understood that As per its clause 20, 38 and 40 it should be recognised in the books.
Sir Pls share your views on this ?
Thank You Sir for your reply
I studied AS 26 and understood that As per its clause 20, 38 and 40 it should be recognised in the books.
Sir Pls share your views on this ?
06 February 2010
I refered clause 20,38 and 40 but could not convince myself as to its recognition.
However, Clause 50 clearly states: Internally generated brands, mastheads, publishing titles,
customer lists and items similar in substance should not be recognised
as intangible assets.
However, Clause 50 clearly states: Internally generated brands, mastheads, publishing titles,
customer lists and items similar in substance should not be recognised
as intangible assets.
07 February 2010
To capitalize the expenses incurred for building the brands according to AS-26, intangible should met following conditions:-
Identifiability
It should be separable from goodwill means it can be sold, rented without disposing of future economic benefit that flow from other tangible and intangible assets.
Contol
Power to obtain the future economic benefit flowing from the underlying resource and can restrict the access of other to those benefit by copyrighting or registering it.
Future economic benefit
Some revenue should generate from it
Now come to your question. Goodwill is something different from brands built by you. Goodwill cannot be sold. It can be possible if you sell ur business, you vl charge for goodwill built by you. Goodwill is not at all registered anywhere. Take an example of NIIT its institute to impart training for computer science. Once one person has set up and started NIIT, after sometime it expand like anything and more and more want to associate with it. They expanded its business and built goodwill. This goodwill built by owner of NIIT can be misused so they get registered so that nobody can use their name to impart training and started providing franchise.
After registration, NIIT fall in brand name other than goodwill. So as have to you mentioned self generated brand, you need to identify what is it exactly??
As far as amount of capitalization concerned, you can capitalize the cost of registering and taking copyrights.
Charge income from royalty and any kind of amount from franchisee.
Identifiability
It should be separable from goodwill means it can be sold, rented without disposing of future economic benefit that flow from other tangible and intangible assets.
Contol
Power to obtain the future economic benefit flowing from the underlying resource and can restrict the access of other to those benefit by copyrighting or registering it.
Future economic benefit
Some revenue should generate from it
Now come to your question. Goodwill is something different from brands built by you. Goodwill cannot be sold. It can be possible if you sell ur business, you vl charge for goodwill built by you. Goodwill is not at all registered anywhere. Take an example of NIIT its institute to impart training for computer science. Once one person has set up and started NIIT, after sometime it expand like anything and more and more want to associate with it. They expanded its business and built goodwill. This goodwill built by owner of NIIT can be misused so they get registered so that nobody can use their name to impart training and started providing franchise.
After registration, NIIT fall in brand name other than goodwill. So as have to you mentioned self generated brand, you need to identify what is it exactly??
As far as amount of capitalization concerned, you can capitalize the cost of registering and taking copyrights.
Charge income from royalty and any kind of amount from franchisee.
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Querist : Anonymous
Querist :
Anonymous
(Querist)
07 February 2010
Thank u Miss Deepika,
You have understood it correctly. I am talking about brand name like NIIT only . So, Mam this brand was created almost 8 years ago but Now my Company wants to show it in the books .
So Mam can you please tell me that how can we valuate it in our books now ?
As the amount which we paid 8 years ago for generating this brand is much lesser then the value , it has today ..
You have understood it correctly. I am talking about brand name like NIIT only . So, Mam this brand was created almost 8 years ago but Now my Company wants to show it in the books .
So Mam can you please tell me that how can we valuate it in our books now ?
As the amount which we paid 8 years ago for generating this brand is much lesser then the value , it has today ..
08 February 2010
Based on the above discussion, I did some research and have found that Brand valuation could, broadly, be categorised into three types.
One, valuation done as an academic exercise, and explained in the Notes to accounts. Ready examples are companies such as Infosys, Satyam and Rolta.
Two, brand valuation done by appointing valuers, on the basis of which the balance sheet is adjusted for intangible assets and capital reserve, as in the case of Sintex, Kitply and Emami.
Three, brands actually paid for, as did Nirma and a subsidiary of Wipro.
I believe the better way for your company would be to go for the option two, wherein, you get the brand valuation done by appointing indepdent valuers.
The method of valuation that could be adopted are market value of company's shares, brand's replacement value, and present value of the company's free cash flow minus the assets employed multiplied by the required return.
Brand valuation, which forms part of the balance sheet, must have been paid for. Yet, some companies do a revaluation exercise, through appointed valuers. Please note that accounting standards of the Institute of Chartered Accountants of India do not permit recognition of such value in the books.
Take the case of Sintex Industries Ltd. Its 2005 annual report has a note that states: "In the year 2000-01, Sintex brand owned by the company had been valued by Deloitte Haskins & Sells, at a value as at the beginning of that year. The value has been accounted for in the books by debiting the Brand Value shown under the Fixed Assets and by creating Brand Valuation Reserve shown under Reserves and Surplus." The amount involved was Rs 165 crore.
Emami Ltd stated in its 2005 annual report that intangible assets had been valued as on March 31, 2005 by Ernst & Young at Rs 423 crore. This included Rs 265 crore for brands. "Based on the said valuation, the company's brands were accounted for in the books of accounts in the year 1999-2000. The resulting amount was credited to Revaluation Reserve," states Emami.
Kitply's annual report of 2004-2005 spoke of brand valuation done in June 2000 by Ernst & Young. "This has resulted in an increase in the book value of the brand by Rs 1,27,61,62,273 which was credited to Revaluation Reserve Account in that year," it states.
As you can appreciate, this form of accounting results in showing a higher gross net worth because of revaluation reserve, although tangible net worth (that is, gross net worth less intangible assets) is unaffected.
Infy has provided the value of brands in Notes to Accounts and not in the Books. However, they have explained their methodology, which is as under:
Determine brand profits by eliminating the non-brand profits from the total profits of the company.
Re-state the historical profits at present-day values.
Provide for the remuneration of capital to be used for purposes other than promotion of the brand.
Adjust for taxes
However, I suggest that obtain valuation report from some independent valuers.
One, valuation done as an academic exercise, and explained in the Notes to accounts. Ready examples are companies such as Infosys, Satyam and Rolta.
Two, brand valuation done by appointing valuers, on the basis of which the balance sheet is adjusted for intangible assets and capital reserve, as in the case of Sintex, Kitply and Emami.
Three, brands actually paid for, as did Nirma and a subsidiary of Wipro.
I believe the better way for your company would be to go for the option two, wherein, you get the brand valuation done by appointing indepdent valuers.
The method of valuation that could be adopted are market value of company's shares, brand's replacement value, and present value of the company's free cash flow minus the assets employed multiplied by the required return.
Brand valuation, which forms part of the balance sheet, must have been paid for. Yet, some companies do a revaluation exercise, through appointed valuers. Please note that accounting standards of the Institute of Chartered Accountants of India do not permit recognition of such value in the books.
Take the case of Sintex Industries Ltd. Its 2005 annual report has a note that states: "In the year 2000-01, Sintex brand owned by the company had been valued by Deloitte Haskins & Sells, at a value as at the beginning of that year. The value has been accounted for in the books by debiting the Brand Value shown under the Fixed Assets and by creating Brand Valuation Reserve shown under Reserves and Surplus." The amount involved was Rs 165 crore.
Emami Ltd stated in its 2005 annual report that intangible assets had been valued as on March 31, 2005 by Ernst & Young at Rs 423 crore. This included Rs 265 crore for brands. "Based on the said valuation, the company's brands were accounted for in the books of accounts in the year 1999-2000. The resulting amount was credited to Revaluation Reserve," states Emami.
Kitply's annual report of 2004-2005 spoke of brand valuation done in June 2000 by Ernst & Young. "This has resulted in an increase in the book value of the brand by Rs 1,27,61,62,273 which was credited to Revaluation Reserve Account in that year," it states.
As you can appreciate, this form of accounting results in showing a higher gross net worth because of revaluation reserve, although tangible net worth (that is, gross net worth less intangible assets) is unaffected.
Infy has provided the value of brands in Notes to Accounts and not in the Books. However, they have explained their methodology, which is as under:
Determine brand profits by eliminating the non-brand profits from the total profits of the company.
Re-state the historical profits at present-day values.
Provide for the remuneration of capital to be used for purposes other than promotion of the brand.
Adjust for taxes
However, I suggest that obtain valuation report from some independent valuers.
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Querist : Anonymous
Querist :
Anonymous
(Querist)
08 February 2010
Thank you Sir,
You mean that the brand has to revalued every year and the difference is to be trfd to brand revaluation reserve A/C ?
You mean that the brand has to revalued every year and the difference is to be trfd to brand revaluation reserve A/C ?
08 February 2010
Not every year. You can value it once. Then if in any point in the future, you feel that the brand value has undergone a change, you may revalue it.
Querist : Anonymous
Querist :
Anonymous
(Querist)
08 February 2010
Sir, then at what value we have to enter it the books every year ? Are we required to depreciate it on the basis of useful life though it is not a depreciable Asset ?
14 February 2010
Great Research work done by Mr. Rajesh Shah. Appreciated
Intangible asset are not depreciated. They are impaired on the basis of the fair value. If in future when you revalue ur brand value and it is lower than the vaue in books then u cam Impair it in that year.
Intangible asset are not depreciated. They are impaired on the basis of the fair value. If in future when you revalue ur brand value and it is lower than the vaue in books then u cam Impair it in that year.
22 August 2014
agree with Deepika Goel
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