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Accounting for customer relationship

Onkar (Student) (47 Points)

08 March 2014

I saw an item named as "Customer Relationship" on the Balance Sheet of a company, which was under Intangible Asset.

How it has apperad there? I mean what accouting entry is passed.

How the valuation of "Customer Relationship" is done?

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CA. Mayur (Service) (147 Points)
Replied 09 March 2014

An entity can recognised the customer relationship as Intangible assets, if company has legal right or contractual control over the customer or over the loyalty of the customer.

Accounting entry will be Customer Relationship Debit and Cash account Credit

Refer the accounting policy of Heineken N.V. (2011) this is on IFRS (no gaap difffeence on this matter)

Customer-related and contract-based intangibles are capitalised if they meet the definition of an intangible asset and the recognition criteria are satisfied. If the amounts are not material these are included in the brand valuation. The relationship between brands and customer-related intangibles is carefully considered so that brands and customer-related intangibles are not both recognised on the basis of the same cash flows.