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Journal of Product & Brand Management

Brands: the asset definition and recognition test

Tony Tollington

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Tony Tollington, (1998),"Brands: the asset definition and recognition test", Journal of Product & Brand Management, Vol. 7
Iss 3 pp. 180 - 192
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Tony Tollington, (1999),"The brand accounting side#show", Journal of Product & Brand Management, Vol. 8 Iss 3 pp.
Tony Tollington, (2000),"The cognitive assumptions underpinning the accounting recognition of assets", Management
Decision, Vol. 38 Iss 2 pp. 89-98
Tony Tollington, (1998),"Separating the brand asset from the goodwill asset", Journal of Product & Brand Management,
Vol. 7 Iss 4 pp. 291-304

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An executive summary
for managers and
executives can be found
at the end of this article

Brands: the asset definition and

recognition test
Tony Tollington
Senior Lecturer at Middlesex University Business School, London, UK

By keeping brands off the balance sheet and dismissing the claims of marketing
concerning the fruits of its labour, the accounting profession succeeds in preserving
its own reputation for integrity, at the expense of the integrity of marketing...
Effective regulation depends on reliable information, and in this accounting is
inevitably constrained by the uncertainties of the world which it represents. But
perhaps it does not illustrate how accounting can misuse the power it gains from
control of financial reporting, when the recognition tests which it applies are too
restrictive (Oldroyd, 1994, p. 44)
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A new recognition

The above concluding comments are contained in an International

Marketing Review article entitled Accounting and marketing rationale: the
juxtaposition within brands (Oldroyd, 1994). It is an indictment of the
accounting professions treatment of brands to which this paper is a partial
response. The focus of this paper is upon the restrictive recognition tests
which Oldroyd (1994) cites as a reason for the reluctance of the accounting
profession to recognise brands as assets, brand assets, on the balance sheet.
It specifically addresses the restriction or, more accurately, the recognition
boundary created by the definition of an asset based upon a transaction or
event (see Appendix 1). In doing so it shows first how inappropriate the
existing transaction or event recognition boundary is for the widespread
recognition of brand assets on the balance sheet and, secondly, why the
existing attachment of brand assets to purchased goodwill appears to be so
strong. As a response to this situation the paper proposes the creation of a
new recognition boundary based upon an assets separable identity which, in
respect of brand assets, is underpinned by a new brand asset definition, as
Definition of a brand asset
A brand asset is a name and/or symbol (a design, a trade mark, a logo) used to
uniquely identify the goods or services of a seller from those of its competitors,
with a view to obtaining wealth in excess of that obtainable without a brand. A
brand assets unique identity is secured through legal recognition which first
protects the seller from competitors who may attempt to provide similar goods
and/or services and, secondly, enables it to exist as an entity in its own right and
therefore be capable of being transferred independently of the goods and/or
services to which it was originally linked.

Breaking free

There is nothing particularly new about the first sentence above. It is the
second sentence which offers the opportunity for brand asset recognition to
break free from the existing recognition boundary and, also, its existing
attachment to purchased goodwill. The content of the above brand asset
definition is explored towards the end of this paper.
The structure of this paper
The contents of this paper must inevitably delve into accounting matters in
some depth; however, the issues raised by Oldroyd are of sufficient



importance to the marketing fraternity to be worthy of exposure in the

marketing literature. This exposure will take the form of:
(1) an examination of the existing boundary within which brand asset
recognition currently takes place;
(2) reasons for a change to the existing recognition boundary;
(3) the creation of a new recognition boundary based upon an assets legally
separable identity which, in respect of brand asset recognition, is
underpinned by the above brand asset definition.

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Perception skills

Setting boundaries
Our perception of the environment around us is conditioned primarily by our
five senses, that is, sight, touch, hearing, smell, taste, which we can use to
confirm that something tangible exists, and also to achieve a degree of
consensus in the use of our perceptional skills. As sentient beings we also
have perceptional skills which are psychological and intangible in nature and
which are typically expressed in terms of intellect, intuition, imagination and
so on. Our perception is also conditioned by the age we live in and our
geographic location. Within this broad context the perception of an asset
could range from the physical (such as river water) to the intangible (such as
brand name awareness) and its existence could be for a purpose (such as a
social purpose) or for no apparent purpose in any given time and space.
Clearly, to define an asset in such broad terms would mean that almost
anything could qualify as an asset.
Boundaries can be established from a variety of perspectives (see Llewellyn,
1994); however, highly pertinent to the accounting professions perception
of its economic environment is the setting of a clearly defined boundary in
respect of the recognition of an asset. This probably involves, first, a
narrowing of the broad context espoused above with the possible effect
that the financial information produced within a specified recognition
boundary may not be fully reflective, in terms of scope and metaphorical
understanding, of the perceived economic reality it is trying to capture and
portray. Secondly, from the information users perspective, the possibility
always exists that what constitutes an asset may change with social,
economic, technological and other circumstance so that the original
recognition boundary, established by the accounting profession, becomes
increasingly unreflective of their perceived view of reality. In the first
instance the argument is that the original recognition boundary-setting
process may be too restrictive and, in the second instance, the argument is
that the boundary may need to be changed to reflect environmental change.

An incomplete view

The existing boundary for the recognition of brand assets

The recognition of internally created brand assets
If the existing asset recognition boundary is too restrictive then this is likely
to result in an incomplete view of the balance sheet. For example, in respect
of intangible assets, Grand Metropolitan plc capitalises (as an asset on its
balance sheet) the purchased Burger King brand asset whilst excluding the
internally created or home-grown Croft sherry brand asset. The selective
capitalisation of purchased brands alone usually arises from the definitional
requirement (Appendix 1) for the recognition of an asset to be based upon a
transaction or event, a basis which is largely inappropriate for the
recognition of internally created or home-grown brands. This, in turn, results
in an incomplete view of the balance sheet because it can be argued that,
whether purchased or not, if both of the above brands are capable of



producing wealth then there is a prima facie case for both of them to be
recognised on the balance sheet. Indeed, the Accounting Standards Board
(ASB), the UK accounting regulatory body, has recently acknowledged that
An internally developed intangible asset may be capitalised only if it has a
readily ascertainable market value (ASB, 1997, para 14). However, whilst
a readily ascertainable market value or some other value is essential, asset
recognition is still defined as resulting from a transaction or event and the
two issues, measurement and recognition, should not be confused. This
assertion is based upon a simple premise (and prerequisite): first define and
recognise an asset before measuring its worth. If one does not define and
recognise, for example, a brand asset (above) prior to measurement then any
separate measurement exercise erroneously becomes a means of both
recognition and measurement (see brand values extracted from goodwill
recognition, below). As Wood (1995) put it ...definition should be
attempted because if we do not have some idea of brand phenomenology it is
impossible to develop a reasonable model for valuation.

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Separable recognition

Fair asset values

Recognising brand assets as an extraction from purchased goodwill

It is clear from the brand accounting practices of a few notable companies
(Appendix 2) that, in these instances, they have rejected the dominant
accounting stance of subsuming brand assets within the goodwill asset in
favour of their separable recognition on the balance sheet. Yet, the basis for
such recognition can appear to be somewhat tenuous. For example, the
recognition of brand assets usually arises within the context of purchased
goodwill, that is, it is extracted from and is limited by the transaction-based
amount paid for goodwill upon acquisition of a business. Except in some
unusual cases, such as Ranks Hovis McDougall plc (see Rutteman, 1990) ,
brand assets typically utilise part of the transaction-based recognition trigger
associated with goodwill to validate their own recognition as separable
The above situation is unsatisfactory because, in accounting terms, the
existence and value of purchased goodwill and, by association, the existence
and value of the extracted brand assets are dependent upon the difference in
the relative sizes of fair asset values acquired and money paid for the
purchase of a business which, in theory, could be zero or even negative (see
Appendix 4). Yet, paradoxically, the brand asset could exist in reality and
represent a useful source of future wealth. As a result it is suggested that the
existing boundary for the recognition of intangible assets should be
reassessed to allow, if necessary, for asset recognition to break free from the
constraint imposed by goodwill and the transaction or event-based
recognition trigger associated with the definitions of an asset (Appendix 1);
hereafter it is referred to as the asset definitions.
A boundary change to reflect environmental change
A soft systems approach
Part of the aforementioned psychological characteristics of human beings is
the ability to attribute meaning to the reality they perceive. Unlike a
television transmitter which, through an electronic process, simply encodes,
transmits and decodes a two-dimensional view of reality, human beings are
also able to interpret and give meaning to the process using intellectual
concepts. These concepts are often themselves derived from the perceived
reality they seek to portray and as a result both concept and perceived reality
steadily create each other. For example, a perceived reality could be that a
successful football star represents a source of wealth leading to the



development of a concept that, under certain circumstances, human

resources can be capitalised. This concept can then be repeatedly recreated
through an examination of the certain circumstances taking into account
age, fitness, league status, star status, contractual arrangements, legal
constraints and so on.
A contrast in systems

The above television transmission process is an example of a hard system

where the boundaries or limits to its existence and operation are well defined
and delineated. Contrast this process with a soft system, such as the
existence and operation of an asset, where its boundaries or limits are
difficult to define and delineate from the broad context referred to in the
previous section of this paper. For example, the definition of an asset refers
to future economic benefit which, as a generic phrase, could easily
encompass previously uncapitalised items such as advertising expenditure
(see Picconi, 1977).

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In a soft systems approach to a perceived view of reality it is, in part, the

ever-changing outcome of social processes in which human beings
continually construct and negotiate with others their perceptions and
interpretations of the world outside themselves that enables them to produce
rules for coping with it. These rules are never fixed once and for all
(Checkland, 1988). (See also Morgans (1980) radical humanist paradigm,
Moores (1991) critical legal studies/ critical accounting approach and
Marsden and Littlers (1996) social constructionist paradigm for similar
organisation, legal/accounting and marketing viewpoints, respectively.) It
follows that if the perceptions and interpretations change, maybe because
society is perceived to have changed, then there may also be a case for
changing the accounting rules. For example, in the first part of the twentieth
century, software, biotechnology, telecommunications, genetic engineering
and so on were all virtually non-existent and yet today they represent
potentially huge and sustainable sources of wealth. The asset definition
states that assets should be recognised if they are triggered by a transaction
or event. One deleterious effect of this definition, for example, is that on
the 1996 balance sheet of pharmaceutical giant, GlaxoWellcome plc, neither
the valuable research patents nor the select band of highly skilled boffins
who created them are represented as assets, despite being a critical source
and determinant of wealth, respectively. Whilst the salary payment to these
boffins, currently charged to revenue, represents an accumulation of perhaps
thousands of historic transactions which could be aggregated and capitalised,
they probably bear little relationship to the current and future wealth to be
derived from the patented ideas created by them the true, internally
created, sources of wealth not recognised by the asset definition.
A source of conflict

The GlaxoWellcome plc example shows that anomalies can arise which are
not captured within the existing boundary for the recognition of an asset.
Such examples can be a source of conflict between those who seek to
maintain the status quo and those who advocate change, that is, either
through a creative manipulation of the existing recognition boundary (such
as extracting brand assets from goodwill) or by redefining it (such as
creating a new definition of an asset). In this latter respect the situation may
be similar to Kuhns (1970) model of revolution where a crisis stage is
reached and the dominant paradigm is overthrown by a new reigning
paradigm (see also Gambling, 1987).



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An economic perception
of reality

An economic perception of reality limited by legally determined boundaries

The asset definitions are firmly embedded in an economic perception of
reality. For example, the perceptional stance only includes assets capable of
producing future economic benefits, such as a car used for hire, selling and
other wealth-creating purposes rather than for social purposes. This being
the case, then a brand, whether purchased by a business or not, which
contributes towards producing future economic benefits, should similarly be
regarded as an asset. However, for most companies this is not the case
because, within the broad economic boundary for the recognition of all
economic assets, the accounting profession has erected a further narrower
and predominantly a legal boundary based upon recognition of a
transaction or event, a boundary which does not capture internally created
brand assets. The advantage that this narrower, predominantly legal
boundary has over the broader economic boundary is that it makes it easier
to identify, date and measure selected economic assets captured within the
boundary; a boundary of a type which, according to Llewellyn (1994), is
egocentric. An egocentric boundary acts as a container for the system parts,
is relatively autonomous and is focused on internal design, in this case, the
transaction or event-based recognition of an asset. In contrast, an open
systems boundary is permeable and boundary-spanning exchanges can
occur, for example, between a persons perception of their economic
environment in relation to their perception of the total environment. Those
assets which are not captured within an egocentric boundary, such as
internally created assets, cannot be tied to a specific transaction and date and
it is, therefore, more problematic to recognise and value them (see Arnold et
al., 1992; Arthur Andersen & Co., 1992; ASB, 1996; Barwise et al., 1989;
Kato Communications, 1993; Power, 1990; Wood, 1995).
The dominance of the transaction or event boundary is derived from its
definitional status. Organisational researchers have endless theoretical
debates on what the boundaries are or whether there are any: the accountants
settle the matter by definition, and acquiring boundaries means, for an
organisation, acquiring reality (Meyer, 1983). The consequence of erecting
a transaction or event boundary is that it may fail to capture enough
information to portray an acceptable picture of a perceived economic reality.
The picture is always incomplete; however, what accountants should
determine is how much distortion in the picture is acceptable, particularly if
one believes intangible assets are of increasing importance:
The financial statements of a business enterprise can be thought of as a
representation of the resources and obligations of an enterprise and the financial
flows into, out of, and within the enterprise...Just as a distorting mirror reflects a
warped image of the person standing in front of it or just as an inexpensive
loudspeaker fails to reproduce faithfully the sound that went into the microphone
or onto the phonograph records, so a bad model gives a distorted representation of
the system that it models. The question that accountants must face continually is
how much distortion is acceptable (FASB, 1980, para 76).

The level of distortion

One suspects that the level of distortion, particularly in respect of internally

created assets, is becoming increasingly problematic for the accounting
profession. This is a point worth exploring further by looking at alternative
ways in which recognition of an asset could take place other than on the
basis of a transaction or event.
This is now considered within three broad asset categories as shown in
Table I.



1. Common economic asset examples

Common lands foresting, harvesting, grazing etc.
Atmospheric gases nitrogen, oxygen etc.
Sea water minerals, fish, cooling, dumping etc.
2. Separable asset examples
Internally created trade-marked brands, research patents, registered designs,
copyrighted software, books, music and films
Extracted mineral deposits
Animal semen and horticultural seeds
3. Transaction or event asset examples
Purchased brands, software, patents, designs, films
Other fixed assets

Table I. Asset categories

These three categories are as follows:

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(1) common economic;

(2) separable;
(3) transaction or event.
Assets capable of
producing wealth

Common economic asset refers to all assets capable of producing wealth. In

this category there are also assets which are uniquely common, that is, they
have no separable identity attributable to any particular business entity, nor
are they the result of a transaction or event but they, nevertheless, can be
used to produce wealth, for example, the atmospheric nitrogen used by
fertilizer companies. Separable assets are assets which can, if required, exist
separately from the other assets of a business and which are often capable of
being used to produce wealth in a variety of business situations. The
separability of an asset is evidenced by being capable of transfer, physically
and/or legally, between parties; a feature which, incidentally, appears to be
lacking in respect of goodwill since no one, in their right mind, would
purchase goodwill without the other acquired assets of a business. A
separable asset can exist irrespectively of whether it was purchased or not,
that is, it is a feature of its nature rather than a business transaction.
Transaction or event-based assets are assets which are recognised usually as
a result of a purchase or where a legal obligation arises such as a legal
judgement debtor. Transaction or event-based recognition typically
establishes a date, item and amount.

Three categories

The examples in Table I are not mutually exclusive since it is possible to

move or repeat individual examples upwards (3-2-1) but not downwards
(1-2-3) between categories. For example, common grazing land
(category 1) is not a separable item to a business (category 2) nor the
product of a transaction or event (category 3). Similarly, internally created
trade-marked brands (category 2) are not the product of a transaction or
event (category 3) but they have economic capabilities (category 1) such
as the Coca-Cola brand. At present only category 3 assets tend to be
included on the balance sheet. The argument presented in this paper is that
the asset recognition trigger should now be extended to include category 2
and 3 assets. Both categories are legally determined; for example, the
statutory trade-mark registration of internally created brands and the
contractual recognition of purchased brands, except that category 3 assets
usually possess an original cost whereas category 2 assets require an
independent valuation.



A question of priorities

The definition and recognition of brand assets within a revised

boundary based on separability rather than a transaction or event
If, according to the asset definition, recognition of an asset is restricted by
the imposition of a transaction or event boundary then consideration
should be given either to similarly restricting the scope of the definition of a
brand asset or to removing or changing the boundary in both definitions. The
debate is then a question of priorities with the author having argued, in the
preceding sections of this paper, that changing the boundary is a necessary
prerequisite to the recognition of increasing important internally created
assets, such as brand assets.

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Any proposed boundary changes can be included in a new definition of a

brand asset which, ideally, should also try to accommodate the existing
definitions of a brand from the marketing literature and the existing
definitions of an asset from the accounting literature. In this latter respect
the definition of a brand asset would be constitutive, that is, there would be
constructs underpinning its definition which is similar to those underpinning
both the definition of a brand (Appendix 3) and an asset (Appendix 1). The
first sentence of the new brand asset definition is clearly constitutive (see
introduction). It defines what a brand is and, as an asset, what it does, that is,
produce wealth. The second sentence above introduces the legal boundary
within which recognition of a brand asset can take place. It is based on the
notion of separability as briefly discussed in the preceding section of this
paper. It is this latter aspect which is now examined.

Context specific

Revised recognition criteria

A way of recognising something, which cannot be visually or tangibly
recognised, is to establish some criteria for recognition which takes authority
by becoming acceptable to society as a whole. Recognition would then
become context specific: it would rely upon society decreeing what should
become recognisable as an intangible asset, with authority being given
usually through law and practice. It therefore becomes a legal abstraction
which takes on a unique physical form through supporting documentation.
For example, a trademark, which is intangible by nature, can be given
recognition through statutory registration. A definition of a trade mark is that
words, designs, letters, numerals, shape of goods or packaging... are...
capable of being represented graphically which is capable of distinguishing
goods or services of one undertaking from those of other undertakings
(Trade Marks Act, 1994). Brand assets comprise more than just trade marks
(such as name awareness, perceived quality) but the advantage that the latter
have over the former is that their legal registration and documentation
become a partial but, nevertheless, physical surrogate for the missing
intangible resource. This basis for recognising brand assets provides a higher
degree of certainty, as to their existence, than other brand attributes such as
brand loyalty and quality. Additionally, the legal identity of trade marks
accords to brand assets other attributes normally associated with physical
assets which would not otherwise be present, namely separability and
exchangeability, which are addressed below. Trade marks are, therefore,
able to offer a vehicle for the acceptance by accountants of the recognition
of brands and more importantly of their inclusion on the balance sheet as
assets, independently of purchased goodwill.
It may be argued that a trade mark can never be regarded as a surrogate for a
brand asset. However, compare some of the definitions of a brand in
Appendix 3 and the opening lines of the authors own definition of a brand



asset (in the introduction) to the definition of a trade mark (above) and
observe the similarities between them. Also note that the authors aim is to
provide a basis, in this case a legal basis, for recognition of brand assets
which the accounting profession has already shown it is prepared to accept
on the balance sheet (Appendix 2). The approach is one step at a time: first,
break the link between brand assets and the transaction-based recognition of
purchased goodwill by establishing separable legal grounds for a brand asset
through a trade mark, and subsequently, strengthen the process of
recognition through further research into the more abstract brand attributes
such brand loyalty, brand awareness, perceived quality.

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Concept of separability

Implicit in the Appendix 3 definitions of a brand is the notion that a brand is

inextricably linked to goods or services. It follows that if the goods or
services are curtailed then the brand ceases to exist. Contrast this behaviour
with other assets, such as a machine, which can be put to alternative uses
should certain goods or services cease to exist. The machine is separable
from the other assets of the business and is often capable of being utilised to
produce future economic benefits in a variety of business situations. This
concept of separability is a fundamental feature of most assets. For example,
Chambers (1966) defines an asset simply as any severable means in the
possession of an entity and by severable is meant that an asset ...can be
converted to other means by exchange or the processes of production or
which may be alienated by way of gift.
Recognising a brand asset as a legal entity through a trade mark confers
upon it separability, that is, in legal terms at least, the brand asset can exist
as an asset independently of any product. However, this raises some serious
practical problems; for example, could the unique name of Lee & Perrins
exist independently of the Worcester sauce to which it is linked? To examine
this point further requires an extension of separability idea to include
exchangeability, that is, proof of a brand assets separability is evidenced
by the ability of the brand asset to be transferred between products and
services (such as Disney films to Disney shops and products) or by being
sold (such as the purchase of the use of the Cadbury brand name by Premier
Brands plc). It is a fundamental aspect of a trade mark, from which brand
assets could be developed, that it is ...adapted of itself, standing on its own
feet (Bainbridge, 1994). As a consequence, there would appear to be
stronger grounds for the separable inclusion of brand assets, on the
balance sheet, than goodwill (see Appendix 4). However, much of the
current accounting debate on this issue is focused upon the latter since, at
present, the existence of goodwill tends to be a prerequisite to any
consideration being given to the separate existence of brand assets.

A change in the
recognition boundary

The introductory quotation from Oldroyd says that accounting is inevitably
constrained by the uncertainties of the world which it represents. According
to the ASB (1995) uncertainty is overcome by better quantity and quality of
evidence over an assets existence, nature and measurement (para 4.38). No
one doubts that brand assets exist; however, the evidence required by the
accounting profession for the recognition of internally created assets appears
to be insufficient for their inclusion on the balance sheet. This paper goes
some way towards rectifying this situation through a proposal to change the
existing asset recognition boundary to allow the use of legal sources of
evidence in addition to those established, often contractually, through a
transaction or event and, also, through the provision of a new brand asset



definition. It leaves completely untouched the evidence associated with

measurement; however, as stated earlier in the paper: first define and
recognise a brand asset before considering measurement issues. Otherwise,
as Lloyd (1989) humorously put it, It would be like knitting a wooly for an
octopus without realising it had eight legs.

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Representation of truth

Rorty (1981) refers to research which helps society to break free from
outworn vocabularies and attitudes as edifying research. It is a stance,
adopted in this paper, which sees truth as what is better for us to believe
rather than as the accurate representation of reality since, it can be argued
that the latter is, in part, based upon socially constructed beliefs anyway (see
Hines, 1988). According to Hines (1991), to knowingly speak what may
appear to be an abnormal discourse requires confidence in ones personal
vision and the courage to communicate that vision. This is, in part, because
rationalism and materialism prioritize the intellect and miltitate against the
living and experience of other human potentials such as emotion, intuition,
imagination, spirituality and aesthetics. The personal vision presented in
this paper is based on the view that brand assets and other intangibles either
create or help create wealth or they do not and, if the former prevails, then,
in principle, they should all be separately capitalised.
To selectively capitalise brands simply because they are recognised on a
rule-driven transaction or event basis is to risk letting the form dominate the
substance; the substance being an economic environment where intangible
assets are perceived to be increasingly important to economic survival and
where, according to Quah (1997), success comes not from having built the
largest factory, the biggest oil supertanker, or the longest assembly line. In a
weightless economy, success comes from knowing how to locate and
juxtapose critical pieces of information, how to organise understanding into
forms that others will demand. Oldroyd (1994) questions whether a change
of accounting orientation towards brands is possible. This paper presents
one idea towards changing accounting orientation in favour of the
widespread recognition of brand assets on the balance sheet, whether
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Appendix 1: US and UK definition of an asset

Assets are probable future economic benefits obtained or controlled by a particular entity as a
result of past transactions or events.
(FASB, 1985)
Assets are rights or other access to future economic benefits controlled by an entity as a result
of past transactions or events.
(ASB, 1995)
Appendix 2


Capitalised brands

Cadbury Schweppes plc

Grand Metropolitan plc
Guinness plc
Note: cb/ta% = capitalised brands/total assets 100


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Table AI. Examples of companies that include brand assets on their 1996
published balance sheets
Appendix 3: Definitions of brands and brand equity
A brand is a name, term, sign, symbol or design, or combination of them which is intended to
identify the goods or services of one seller to differentiate them from those of competitors.
(Kotler, 1980)
...a name, term, design, symbol, or any other feature that identifies one sellers good or
service as distinct from those of other sellers. A brand may identify one item, a family of
items, or all items of that seller.
(Bennett, 1988)
A brand is a recognised name associated with a product, which projects an image to the
consumer such that he or she rates the product associated with the brand higher than other
comparable products.
(Mainz and Mullen, 1989)
Brand equity is a set of brand assets and liabilities, linked to a brand, its name and symbol,
that add to or subtract from the value provided by a product or service to a firm and/or to that
firms customers. For assets or liabilities to underlie brand equity they must be linked to the
name and/or symbol of the brand...The brand assets and liabilities on which brand equity is
based will differ from context to context. However, they can be usefully grouped into five
categories: 1. Brand loyalty, 2. Name awareness, 3. Perceived quality, 4. Brand associations in
addition to perceived quality, 5. Other proprietary brand assets patents, trademarks, channel
relationships etc.
(Aaker, 1991)
Appendix 4: The recognition of goodwill
In determining whether goodwill has any economic impact at all it is probably necessary to
avoid the operating terms of SSAP22 and APB No.16 (below) and define it in terms of its
nature, otherwise one cannot be sure that the wealth it may create is actually derived from it
rather than from one or more, as yet, unidentified subsumed assets. It has been variously
described in terms of customer loyalty, strategic locations, superior management, brands and
so on (see Nelson (1953), Catlett and Olsen (1968), Tearney (1973), Falk and Gordon (1977)),
however, in accounting terms, it is simply a transaction-based arithmetic difference created by
the application of a rule:
Goodwill is the difference between the value of a business as a whole and the aggregate of the
fair values of its separable net assets(ASC, 1989) or
A difference between the cost of an acquired company and the sum of the fair values of
tangible and identifiable intangible assets less liabilities is recorded as goodwill (APB No.



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This summary has been

provided to allow
managers and executives
a rapid appreciation of
the content of this
article. Those with a
particular interest in the
topic covered may then
read the article in toto to
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benefit of the material

Executive summary and implications for managers and

Brand asset valuation: a skirmish in the war between marketing and
As a marketer Im not aware of the rude names accountants reserve for us.
Weve certainly a few for accountants and accountancy typified either by the
term bean counter or by the quotation from Oldroyd used by Tollington to
open this article on the definition of the brand asset. We could maintain that
the reluctance of accountants to consider brands as real assets represents
their professional desire to maintain absolute control over the inner sanctum
of business reporting the balance sheet. But this wont get us very far in
securing a role for marketing in business investment strategy.
If we accept that it is irrational to exclude internally created brand assets,
while including purchased brand assets, we have to develop and use a
measure of internal assets. As marketers, we understand brands better than
finance officers and they cannot expect to define and value assets without
the active contribution of marketing people. For marketers the acceptance of
brand asset value by accountants would represent the acknowledgement of
the value to firms of investment in those brands. And this changes the way in
which firms must view advertising and marketing expenditure.
To get to the stage where brand assets are acknowledged there are still a
number of hoops for marketers to jump through.
Accepting that brands are assets
As Tollington demonstrates, there remains a significant school of opinion
within accountancy that argues against the recognition of brand assets. The
nub of this argument is the belief that, without a transaction, there is no
accepted market value. Without this recognised market value the asset
cannot be included on the firms balance sheet. Tollington argues that this
recognition requires accountants to acknowledge the logical inconsistency of
the current position vis--vis brand asset valuation. The definition of an
asset in accounting terms needs broadening to accept, in Tollingtons terms,
new boundaries for acceptable brand definition.
Creating a recognised measure of brand value
If the boundary change is accepted, we can only act on including internally
created brands in the balance sheet if a recognised measure of brand value
exists. Much has been achieved in this area but there remain differences of
opinion about how to value brands. Does the brand value represent the sum
of consumers willingness to pay a premium over unbranded competitors?
Or should we measure brand asset value on the basis of the premium placed
on the brands existence by investors in the firm?
Understanding the relevance of financial measures to marketing
Marketers are notorious for their lack of financial acumen and knowledge.
At times we cover this ignorance up by the disparagement and dismissal of
accountancy. Yet, marketers know that appreciating financial issues is vital
if we wish to see marketing budgets as an investment rather than a cost.
Certainly, marketing education and training should include more financial
and accounting learning.



Developing means of measuring how well marketing expenditure

enhances the asset value of brands
As with measuring brand asset value, we face a problem dealing with
assessing return on investment for marketing expenditure. In brand terms
this requires an understanding of advertising effectiveness measures and
other ways of assessing how well our marketing activity benefits the brand.
Simply adding brand assets to the balance sheet may help the manifest
financial position of the firm but we can only make management use of this
inclusion if we can assess with some degree of confidence how well our
investment is contributing to enhancing asset values.

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The debate about brands as assets will continue since most managers accept
that a brand cannot be seen in any other way than as an asset. Tollington
expresses the view that brands can be seen as independent of the product or
service to which they were originally attached. This view requires a change
in thinking not just by accountants but by marketers themselves. The
ability to separate a brand from the products carrying that brand is by no
means universally accepted by marketers let alone people in other
management disciplines.
If the marketing profession is serious about shifting the view of brands and
brand investment, there is a need for concerted action. And we need
consistency in our view of brands and a willingness to accept that the
arguments of accountants are not merely spiteful but represent a considered
view of assets and asset valuation. The accountancy position may face
criticism from the view of logic but without doubt the accounting standards
currently in place do represent a consistent view of valuing companies and
their assets.
Finally, we must accept that the brand valuation issue is just one of the
challenges facing those developing accounting standards. Not only are there
international differences in accounting practice but the treatment of other
assets buildings, intellectual property, customer databases also needs
attention given inconsistencies in the treatment of these assets by firms.
Tollington shows marketers the way forward by couching his arguments in
the terminology of accountancy and finance research rather than trying to
convert finance officers to marketing terminology and attitude.
(A prcis of the article Brands: the asset definition and recognition test.
Supplied by Marketing Consultants for MCB University Press.)



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