Several major companies believe that their brands are there most valuable assets. This explains the increasing importance placed on brand creation and management . This also explains the reason for paying vast sums of money to acquire brand-rich companies.


The idea of brands as financial assets emerged in mid eighties. As brands have significant financial value, their absence from the balance sheet distorts the true financial position of a company. Hence ,in order to ensure that the market valuation of a company is reflective of its true intrinsic worth it has become necessary for companies to determine the values of their brands

Methods of brand valuation
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Earnings valuation method 1.Determine the brand earnings 2. Determine the brand strength or brand earnings multiple 3. Compute the brand value by multiplying the brand earnings with the multiple derived in step 2

brand earnings multiple

An assessment of brand strength requires detailed review of the brand, its positioning, customer loyalty, the markets in which it operates, competition, stability, long-term trends , statutory protection, brand management by the companies, etc. Based upon the above factors, an appropriate multiplier is determined

Methods of brand valuation

Cost method:- this method involves stating the brand valued at its cost to the company. This is relatively easy when the brands are acquired. The money paid to buy the brands can be directly stated. It is more difficult to value the brand when the brand has been developed in house by the company

Accounting for price level changes

Inflation is the overall upward movement of prices of goods and services which is measured by consumer price index and producer price index. Consumer price index is an inflationary indicator that measures change in the cost of a fixed basket of products and services and producer price index is an inflationary indicator to evaluate whole sale price levels in the economy

Need for inflation accounting

Inflation accounting can be simply stated at the methods of recognizing and stating the effects of inflation in the final accounts of a corporate entity

Limitations of historical accounting
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1. it does not differentiates between holding gains and operating gains 2. it violates the law of additivity 3. it do not take in to account the fact that purchasing power of the money does not remain the same 4.the costs are not relevant as they do not match with the current costs of assets which lead to insufficient provision of depreciation and un realistic profits

Objectives of inflation accounting

1. To correct the conventional accounting by recognizing the fact that the purchasing power of money reduces day by day due to inflation 2. To reduce the financial statements to real terms and arrive at the actual performance and position of the corporate entity

Advantages of inflation accounting

1. Eliminating holding gains and differentiating between operating and holding gains, thus arriving at the actual profits 2. The value of the assets will be more accurate and closer to its intrinsic value 3. Better inter firm and inter period comparisons can be made

Approaches to accounting for price level changes

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UNDER CPPA the historical accounting data is adjusted on the basis of the general price index which refers to the changes in the prices of the economy as a whole . In India whole sale price index of the reserve bank is taken as the basis

Disadvantages of CCPA

It is found to be less useful in share price movement Movement of prices of goods may not reflect specific price movements

The advantages of CCA

Under CCA method the adoption current cost is recommended to overcome the drawbacks of CCPA. In this methods the current values of individual items are taken as the basis of preparing profit and loss account and balance sheet

Disadvantages of CCA

It is more complex and expensive and time consuming It is opposed by auditors as it is more subjective Replacement cost is meaning less when the firm does not choose to replace the asset

The advantages of hybrid method

Hybrid method approach of accounting for price level changes combines the CPPA and CCA approaches . Financial statements can prepared by combining the factors of CCA and CPPA

The disadvantages of hybrid method

It is more complex and expensive and time consuming It is not proposed by any institutional body as CCA and CPPA approaches have been recommended by institutional bodies

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