Accounting Treatment of Brands, Goodwill and Restructuring Costs

This report discusses the accounting treatment of brands, goodwill and restructuring costs under IAS 138 and AASB 137. It also highlights the difficulties faced by standard setters in allowing formulas for calculating brands and restructuring provisions.

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Executive summary:
This assignment report aims at discussing the accounting treatment of brands with regard to
the rules and the regulations as have been laid down under IAS 138 and also, discusses and
throws light on the difficulties that are faced by the standard setters when it comes to
allowing the formulas for the purposes of calculating the brands and on the statement of the
financial positon. Further, it throws light on the restructuring provisions as have been laid
down under AASB 137.

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Contents
Accounting treatment of brands:................................................................................................4
Accounting treatment of goodwill:............................................................................................5
Recognition:...........................................................................................................................5
Flawed investment strategy:...................................................................................................5
Accounting treatment of restructuring costs:.............................................................................5
Accounting:............................................................................................................................5
Restructuring provision:.........................................................................................................6
Closing down of division:......................................................................................................6
References:.................................................................................................................................7

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Accounting treatment of brands:
IAS 38 deals with the intangible assets. In respect of the initial measurement, these assets are
initially at cost. Any amount incurred after the date of acquisition, the models of cost and
revaluation are used. The company has to choose between the cost model or the revaluation
model for each class of an intangible asset. Under the cost model, after the intangible assets
have been reported at their cost which is the initial recognition, they are disclosed at the cost
less accumulated depreciation of the intangible asset.
Under the revaluation model, these intangible are carried at the amounts at which they are
available in the markets that are based on their respective fair values. This amount of fair
values shall be reduced by the amount of any subsequent amortisation and the losses of an
impairment. This holds good when market values of these assets exists. Such is the market
which exists for the intangible assets. The examples of these include the productive quotas,
tax licenses etc.
Under the model of revaluation, the revaluation increases are disclosed in the books of
accounts and the accumulated amounts are disclosed as the revaluation surplus within the
amount of equity. The amount of the revaluation an also be reversed with time. The
intangibles are further classified into the ones having finite lives and the ones that have
infinite lives. In respect of the intangibles that have an indefinite life would be disclosed on
the basis of the net cash flows that would generate in cash for the company. These are
disclosed at the cost less any amount of residual value of the intangible asset with the finite
useful life that has to be amortised over the useful life of the asset. The amount of
amortisation should be able to reflect the pattern of the benefits that accrue over the life of the
asset. In cases wherein this pattern cannot be measured with reliability, then the amount shall
be amortised using and following the straight line method. The charge and the amount of the
amortisation would be disclosed in the books of accounts unless and until the IFRS states
otherwise. The amount of the amortisation has to be reviewed once in each year. If the future
inflows from that asset increases in the future, then that would show a higher rate of
consumption of the future economic benefits. These intangibles are always expressed as a
measure of revenue and must show the revenue and the consumption on the basis of the
economic benefits derived by the company (IAS plus, 2019).
The issues with intangibles is the fact of accuracy. There have been many concerns about the
accuracy of the marketing asset valuations and ascertaining whether these are genuine in

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nature. Also, the companies involve a different method of valuing the brands and hence, there
are different values of brands reported in the books of accounts. When the brands are
generated internally, then there is as such no way of ascertaining the true cost of the asset
(ACCA Global, 2019).
Accounting treatment of goodwill:
Recognition:
Goodwill is recognised when any business acquires another business. Goodwill could be
generated internally by the company as well. It cannot be purchased from outside. The
amount of the goodwill is allocated amongst the acquirer’s cash generating units or the
groups of the cash generating units which is expected to benefit from the synergies of the
combinations of these business companies.
Each unit of the group to which this amount of goodwill is allocated would show the lowest
level of the goodwill within the company and this would be kept an account of internal
management purposes. This amount shall not be more than the amount from the operating
segment which is in line with the AASB 8 operating segments. This amount of goodwill
never generates the cash on its own. Sometimes, goodwill is allocated following some non-
arbitrary basis to the individual cash generating units (AASB, 2019).
Flawed investment strategy:
The writing of goodwill serves as a flawed investment strategy when the shares of the
company are over-priced and this overpricing is used for the purposes of making the
payments. This is one sense the targets overvaluation which is sued for the purposes of
making the payments (Lu et al, 2011).
Accounting treatment of restructuring costs:
Accounting:
The accounting for restructuring includes providing of a provision for the restructuring costs
only when the general criteria of the restructuring have been duly met.
The management or the board must take the decision with regard to restructuring before the
period of reporting ends and this does not give rise to the constructive obligation as at the end
of the date of reporting unless and until the company starts the implementation of the plan of
restructuring, has announced the main features of the plan to the ones that would be effected

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in some specific manner and would raise the expectation in them but the company would
carry out restructuring (AASB, 2019).
Restructuring provision:
The company under review will have to provide a provision of the purposes of restructuring
so that the restructuring plan could be implemented with much ease and without any
disruptions. Hence, a provision would be required to be created before the end of the
reporting period.
The following are the conditions that have to be met before:
 Has the detailed formal plan for the restructuring which identifies the part or the
business which needs restructuring, the locations of the business that would be
affected, the number of employees and their functions that would be affected, the
amounts that would be spent for restructuring, the plan which is to be implemented
and the valid expectation of the ones that would carry out restructuring.
And the company under review has duly met the above stated conditions.
Closing down of division:
The company must provide an evidence about the plan of restructuring. This would also
include the dismantling of the plan and the selling of the assets and include a public
announcement. This would result in some valid expectation of the other parties such as he
customers, suppliers, employees of the company that would carry out the restructuring.
Even if the company decides to shut down one of its own units, a provision would be required
for the restructuring costs that would incurred. These costs would include the amounts as
have been listed part a.

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References:
Aasb.gov.au. (2019). Impairment of Assets. [online] Available at:
https://www.aasb.gov.au/admin/file/content102/c3/AASB136_07-04_ERDRjun10_07-09.pdf
[Accessed 19 Sep. 2019].
Aasb.gov.au. (2019). Provisions, Contingent Liabilities and Contingent Assets. [online]
Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-
04_COMPjun14_04-14.pdf [Accessed 19 Sep. 2019].
https://www.accaglobal.com, A. (2019). The knotty problem of brand valuation | ACCA
Global. [online] Accaglobal.com. Available at:
https://www.accaglobal.com/vn/en/member/member/accounting-business/2017/09/
corporate/brand-valuation.html [Accessed 19 Sep. 2019].
Iasplus.com. (2019). IAS 38 — Intangible Assets. [online] Available at:
https://www.iasplus.com/en/standards/ias/ias38 [Accessed 19 Sep. 2019].
Lu, F. and Lev, B. (2011). Overpriced Shares, Ill-Advised Acquisitions, and Goodwill
Impairment. [online] Studiapodyplomowe.pl. Available at:
https://studiapodyplomowe.pl/uploads/import/kozminski/pl/default_aktualnosci/168/511/1/
baruch_overpriced_shares,_ill-advised_acquisitions,_and_goodwill_impairment.pdf
[Accessed 19 Sep. 2019].