A purchased brand is one which is acquired

A purchased brand is one, which is acquired from other existing concerns. The acquiring company may acquire only the brand name(s). The value of acquired brands would be the price paid for acquisition of that brand. On the other hand, a company may acquire an existing business concern along with its brands. There are the cases of business mergers and amalgamations. The sum involved in these transactions provides an indication of the financial value of the brands. At the maximum this value is equal to the difference between the price and the value of the net assets indicated on the acquired company’s balance sheet.

Brand value = Purchase consideration - Net assets taken over

However, it is questionable to say that the excess price paid always represents the brand value. The excess is only an amount of purchased goodwill and the acquiring company may have paid the excess price for varied factors also, location of the factory, long term contracts with suppliers, better employee morale, better manufacturing technology etc. besides for brands. It would be difficult to say what part of the excess price paid is attributable to brands. Besides, the price payable is always decided by forces of demand and supply conditions of mergers and amalgamations market. Competitive force may make the acquirer to increase the bid price thereby increasing the amount of purchased goodwill. This inseparability of brand from other intangible assets makes it difficult to value the brands.