Valuation of Brand Name Assets in Premier's Annual Report

COMPANY ACCOUNTING
2019

Premier
The Australian Securities and Investment Commission (ASIC) undertakes regularly financial
reporting surveillance program. It is an Independent Australian government body which also
words as Australia’s corporate regulator. The main objective of ASIC’ is to enforce and
execute company and its financial services to protect Australia’s consumer, investors, and
creditors. Recently ASIC raised a concern about the value of some brand name assets in
Premier’s annual report for the year ended 29 July 2017. It has specifically raised concern for
reasonableness and supportability of assumptions used for impairment of testing brand name
assets. Thus in the current year Board have given detail analysis of Brand Name valuation.
The valuation has been carried out on the basis of individual brand basis based upon a value-
in-use evaluation. The company has taken brand name acquired through business
combinations allocating to three Cash Generating Unit groups as no particular brand name is
considered as appropriate. The three cash generating units identified are Casual Wear,
Women’ Wear, and Non-Apparel (Premier Investment Ltd., 2018).
Thus value-in-use evaluation is based upon royalty collected with the method using cash flow
projections as at July 2018 for a period of 5 years plus a terminal value. The top level
management and the Board members approved the cash flow projections and estimated
growth rates.
The growth rate projection is kept the same in the current year as compared to last year of
3%. As part of the annual impairment, it was observed that the test management took into
consideration both historical cash flow projections and future growth objective (Premier
Investment Ltd., 2018). Now the big challenge is the determination of Royalty rates for
valuation. Royalty rates are determined using various factors such as market share, brand
recognition, profitability of the brand and general condition of the organisation in the industry
for each brand (Kieso et. al, 2010). Thus management has considered data derived from
market to make comparison between brands and notional royalty payments by converting
them into percentage of divisional earnings before interest and taxation.
Thus Royalty rates applied between ranges of 3.5% to 8% as compared to 3.5% to 8.5% in
2017. This change in valuation has lead to a total impairment expense of $30 million. This
loss has been caused in Casual wear CGU due to an increase in the volatility present in the
Apparel industry of New Zealand and Australia. Thus, now estimated value of assets
approximately equals to recoverable value, thus complying with valuation norms of Brand
2