Separating the brand asset from the goodwill asset

Abstract

Purchased goodwill conforms to the current accounting definitions of an asset. However, as the descriptive framework contained within this paper will show, purchased goodwill is not an asset and, therefore, should not be shown on the balance sheet. This would not necessarily matter, from a marketing viewpoint, was it not for the linkage of brand asset recognition to purchased goodwill asset recognition. Currently, the recognition of a purchased goodwill asset tends to be a prerequisite for the recognition of a brand asset extracted from it. If it can be shown that purchased goodwill is not an asset, then the prerequisite disappears. The widespread recognition of brand assets is then unfettered by its association with purchased goodwill. Weakening the basis for the recognition of a purchased goodwill asset is an important first step in encouraging the accounting profession to devise new ways of dealing with the different kinds of intangible assets that are becoming paramount in the governance of companies.

Is older goodwill value relevant?

“…Remaining variation between the UK and other jurisdictions in approaches to goodwill accounting subsequent to acquisition reflects the problematic nature of this asset. Purchased goodwill is not directly observable post‐acquisition and, therefore, any estimate of the amount of goodwill lacks validity because it will vary according to operational and economic circumstances, strategic decisions, and various other factors (Tollington, 1998). Although total goodwill can be determined post‐acquisition as the difference between the fair value of a firm's identifiable net assets and the market value of the firm, segregating this calculated amount between purchased and internally generated goodwill becomes an arbitrary allocation process.…”

Accounting for goodwill: The transition from amortisation to impairment – an impact assessment

“…In terms of IAS 38, Intangible Assets (IASB 2004c), internally generated goodwill shall not be recognised as an asset, because it is not an identifiable resource controlled by the entity and it cannot be measured reliably. The recognition and capitalisation of inherent goodwill is therefore largely conditional on the recognition of purchased goodwill (Tollington 1998). This would tend to support Van Mesdag's view of goodwill as an accountants' acceptable alternative in recognising inherent goodwill on the balance sheet (cited by Tollington 1998).…”

“…The recognition and capitalisation of inherent goodwill is therefore largely conditional on the recognition of purchased goodwill (Tollington 1998). This would tend to support Van Mesdag's view of goodwill as an accountants' acceptable alternative in recognising inherent goodwill on the balance sheet (cited by Tollington 1998).…”

What are assets anyway? Some practical realities

“…This is in contrast to the "Low" methodology discursive approach adopted by the ASB and also, by the author in this paper. However, the author's stance differs from the ASB in that it starts from the basic premiss that one first needs to define and recognise the resource (what an asset is by nature) before one can state what it does in terms of producing future economic benefits (see, for example, Tollington (1998aTollington ( , 1998b in respect of intangible brand assets and goodwill assets, respectively).…”