How Brand became a Legit Financial Asset

Brands are potent, valuable and rare. Successful brands drive consumer loyalty, creating long-term economic benefits and confirming with the definition of an asset. However, as late as the 1980s accountancy was unable to accommodate these assets. 

In 1984 News Group, the Australian flagship company of Rupert Murdoch's worldwide publishing empire decided to take pre-emptive action to correct this accounting anomaly and included a valuation for ‘publishing titles’ in its balance sheet. News Corporation did this because, being an acquisitive company, it had to find a way adjust its acquired "goodwill". Following the accounting standards of the day - deduct acquired goodwill from shareholder equity - would have ravaged the corporation's balance sheet. Thus, News Group reduced the acquired goodwill by treating the brands as acquired assets. 

Following the lead of Rupert Murdoch's News Corporation, the British Bakeries and foods company, Ranks Hovis McDougall, valued it brands $1 billion on its 1988 balance sheet. Next in line was the mighty Grand Metropolitan (now Diageo).

These brand valuations went largely unremarked till 1988 when Ranks Hovis McDougall (RHM), Britain's major Flour and baking company, decided to value all its brands, acquired and otherwise, and to place this valuation on its balance sheet. In 1989, the London Stock Exchange endorsed the concept of brand valuation as used by RHM by allowing inclusion of intangible assets in the class tests for shareholder approvals during takeovers. This proved to be the impetus for a wave of major branded-goods companies to recognize the value of brands as intangible assets on their balance sheets. 

As of the year ended June 30, 2017, P&G carries $24 Billion of brand value on its balance sheet.  The majority of this is for the Gillette brand, which it acquired in 2005, just after the new rules had come into effect.


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