Discuss the Difficulties Relating to the Recognition and Measurement of Intangibles Generally and of Brands in Particular.

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Q: Discuss the difficulties relating to the recognition and measurement of intangibles generally and of brands in particular. Refer to the example in Enigma plc in your discussion.

According to IAS 38, an intangible asset defines as “an identifiable, non-monetary asset without physical substance” including brand, computer software, patents and copyrights. As this typical asset has no physical substance, it is really difficult to recognize and measure it. This essay mainly aims to explain the difficulties to recognize and measure generally intangible assets especially the brand and some analyze refer to the Enigma example will be shown.

An item cannot be an intangible asset unless it is an asset in the first place, that is to say
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As in the Enigma example, the 3 million marketing expenditure on Enigma’s internally generated brand is recognized as an expense in the 2012 comprehensive income statement instead of an intangible asset which meets the requirement of prudence.

After initial recognition, the IAS38 permits the entities to choose between the “cost model” and the “revaluation model” to measure the brand. In the cost model, the intangible assets are carried at cost less accumulated amortization and accumulated impairment losses (Austin, 2007). In this case, the company needs to decide the intangible asset’s useful life objectively and choose a proper method to amortize the intangible assets. While the revaluation model measure intangible assets at a revalued amount. According to IAS38, the fair value of intangible assets must be estimated by reference to an active market in that kind of assets. Therefore, if the brand doesn’t have an active market, the recent price cannot be treated as a fair value and the revaluation model should not be applied to it as well. Compared with the tangible market, such as houses, inventories and machines, the intangible market is imperfections (Alali and Cao, 2010). Therefore, it is difficult to get a

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