We are often asked if a company can put a brand on its balance sheet.
Under IFRS (International Financial Reporting Standards), the position is as follows:
If a company purchases a brand as part of an acquisition, and the value of that brand is separately identifiable, then it should go onto the balance sheet.
If, however, the brand is not purchased, but internally generated, then it should not. One reason for this is that, if a company can put its own self-created brands onto the balance sheet, there is potential for overestimating these brands' value, thereby overstating assets on the balance sheet.
If the directors of a company think a purchased brand has a limited life, then they should reduce that brand value every year, so that the balance sheet value is zero when the brand's life has ended. If they think the brand's value will go on for ever, they can keep it at the same value every year. Whatever the case, the directors must regularly check the brand value; if it has fallen below the value published in the balance sheet, they must lower the balance sheet value.
IFRS (International Financial Reporting Standards) must be applied by listed European companies. In other cases, other rules can apply, and you are welcome to e-mail eddie@thefinanceacademy.com for further information.
