Brand Name
Brandnameistheassetthatcomestomindmostoftenwhen
thereistalkaboutintangibleassets.Afterall,brand names
account for a large proportion of the values of many
consumer product companies, and accounting standards in
many countries have required companies to value brand
names and show them on the books. In this section, we
explorethechoicesthatwefacewhentryingtovaluebrand
name and why the different approaches might give us
different answers.
Historical Cost Approach
Inthehistoricalcostapproach,weadoptasolutionrootedin
conventionalaccrualaccountingtovaluethebrandname.We
beginbymakinganassumptionaboutwhatexpenses thata
firmincursaremostlikelytoimpactitsbrandname.Itstands
to reason, for instance, that a portion of every firm’s
advertising expenses is spent to build or augment the
company’sbrandname.Wethenuseaprocessverysimilarto
theoneweusedtocapitalizeR&DexpensesinChapter 3 to
compute brand name value.
- We determine an amortizable life for the brand name
expendituresbasedonhowlongwethinkthebenefitsfrom
theexpenditurewillaccrue.Forconsumerproductfirms,this
mayextendoutto 20 yearsorlongersincebrandnameshave
long lives.
2.Wecollectthedataonbrandnameexpenditureseachyear
goingbackhistorically,fortheamortizablelifeofthebrand
name.Thus,ifwechoose 20 yearsasouramortizablelife,we