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.
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.
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.