Intangibles are not easily measurable

Intangibles are not easily measurable and it poses severe challenges in valuation of brands also. Some of the difficulties faced by the accountants in brand valuation are as follows :

Distinctiveness : Brands need to be valued distinctively as different from other intangibles such as goodwill. For instance, any attempt to commonly treat brand as a part of goodwill as is done at present may create serious distortions in accounting position. Besides, this would create handicaps in brand accounting. This is because, a brand cannot be treated like any other item such as patents and copyrights. In fact, brand needs to be separately disclosed in the balance sheet, because of its significant contribution to corporate image and identity.

Disclosure : There is always a problem of making disclosure of brand values in financial statements. This is because, there is no standard accounting practice requiring statement and disclosure of brand values in a particular way.

Uncertainty : The problem that is associated with the brand, as an item of intangibles, is that its possible returns are uncertain, immeasurable and non-current in nature. Any expected on such intangibles are usually either written off or treated as deferred revenue expenditure.

The Dilemma : Another area of challenge posing brand accounting is whether to amortize or capitalize the value of brand. There is no question of amortizing brand values as either the economic life of the brand cannot be determined in advance or its value depreciates over time. In fact, it is to be noted that a brand can be purchased or generated and maintained, thus enhancing the corporate future income earnings capacity. The challenge could, however, be overcome by categorizing the brand expenditure into maintenance and investment. Whereas the maintenance expenditure could be charged to Profit and Loss Account and the capital expenditures be shown in the Balance Sheet and where the brand value is shown separately and explicitly in the Balance Sheet, the leverage position of the company can be shown enhanced.

No Market : The prevailing practice is that the intangibles are not required to be revalued according to some accounting standards on account of the non-existence of an active secondary market for them. In fact, the need for brand accounting arises mainly on account of conditions warranted by acquisition and merger.

New Brands : A related problem in accounting for such intangibles as brands is that it is often difficult to determine whether a new one is being gradually substituted for an existing brand. This raises the issue as to how to account for it in subsequent years. In such case, the relevant question is : Should the original cost of brand be written-down as it erodes? It may be difficult to determine whether a brand remains the same asset over time as it is subtly reshaped to meet new market opportunities.

Joint Costs : The contribution to the value of a brand is made not simply by investing a desirable product with a customer seductive name, but by building market share by the skilful exploitation of the product in a whole host of ways of general efficiency with which a business is conducted by expending money on a joint cost basis. It is very difficult to segregate and account for joint costs that are incurred and the cost of brand developed as a result of general operations of the business.