The brands debate Under IAS 22, the depletion of equity reser ves caused by the accounting treatment for purchased goodwill resulted in some companies capitalising brands on their balance sheets. This practice was started by Rank Hovis McDougall (RHM) – a company which has since been taken over. Mar tin Moorhouse, the group chief accountant at RHM, claimed that putting brands on the balance sheet forced a company to look to their value as well as to profits. It ser ved as a reminder to management of the value of the assets for which they were responsible and that at the end of the day those companies which were prepared to recognise brands on the balance sheet could be better and stronger for it.44 There were many opponents to the capitalisation of brands. A London Business School research study found that brand accounting involves too many risks and uncer tainties and too much subjective judgement.

In short, the conclusion was that ‘the present flexible position, far from being neutral, is potentially corrosive to the whole basis of financial repor ting and that to allow brands – whether acquired or home-grown – to continue to be included in the balance sheet would be highly unwise’.45 Required:

Consider the arguments for and against brand accounting. In particular, consider the issues of brand valuation; the separability of brands; purchased vs home-grown brands; and the maintenance/substitution argument.