willcollectthebrand nameexpenditures eachyear forthe
past 20 years.
3.Usingastraight-lineamortizationschedule,wewriteoffa
portion(5percent, forinstance,with a 20-yearlife) ofthe
brandnameexpenditurefromeachyear’sexpenditureinthe
subsequentyears.Asaresult,weshouldbeabletoestimate
the total amortization of brand name expenditures in the
current year (to be treated like depreciation) and the
unamortized portion of the previous years’ expenditures,
which will now be treated as an asset (brand name value).
Whilethisapproachhasthebenefitofsimplicityandreduces
discretionarychoicesbyfirms,itdoesnotreallymeasurethe
valueofthebrandname.Whatitdoesmeasureisthecapital
thathasbeeninvestedin thebrandname, whichmaybear
little or no resemblance to the actual market value today.
Afterall,therearefirmsthathavespentbillionsofdollarsin
advertising and haveno brand name valueto show for it,
whereas thereare otherfirms thatseem to establishbrand
name valuewith little orno advertising expenditure,often
because they happen to be in the right place at the right time.
ILLUSTRATION 12.2: Estimating Brand Name
Value—Historical Cost Approach
In2004,Coca-Colawasrankedthenumberonebrandname
intheworldbyBusinessWeekmagazine.Weknowthatthe
company has always spent liberally on advertising, partly
directedatbuildingupthebrandname.Thefollowingtable
reportsonsellingandadvertisingexpenditures(inmillionsof
dollars)atCoca-Colaeveryyearforthepast 25 years,which
wewillassume istheamortizablelife forbrandname. (In