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P2-D2.
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saqlainrattansi
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So I just wanted to ask about this. You cant recognise intangibles if you cant properly measure them right?
So doesen’t this give a distorted view of the FS?
See a branch manager for KFC will have all the assets that he requires. Let’s say he has a total Capital Employed of $50,000 at his branch. He generated a PBIT of 100,000. So he’s got a ROCE of $2 right?
Now if you take a branch manager of the same quality. Give him in a similar location and same assets. But take away the KFC brand name. I think its fair to assume that he’ll make less PBIT. So lets say he made 50,000 PBIT. His ROCE now is only $1.
An investor looking at these FS will say that the manager A is twice as good as manager B. While this is simply not true. The only difference between the two is that one has a massive intangible asset in the form of the KFC brand name. Yet we haven’t shown this advantage that he has, simply because we can’t measure the reputation of the KFC brand name.
Do you think its time the standard for this was updated? Is there any way we could update this?
P2-D2
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Hi,
If you can’t measure an item reliably it cannot be recognised. It may look to give a distorted view of the accounts using your logic and the numbers above but to include an item without reliable measurement would make things look hugely distorted and unreliable. Don’t forget too that there is more than just the ratios to look at with regards measuring performance.
On a separate point, we don’t control the managers either……
Thanks
saqlainrattansi
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