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I was reading September 2017 examinor’s report and found this comment for Q1.
“It should also be noted that when the examiner states that company brand is not capitalised because it was internally generated this means that it does not give rises to a risk of material misstatement that it should have been on the statement on financial position. Where brands are examined in planning questions the examiner will generally flag whether they are internally generated or purchased.”
Please explain this to me.
In the situation where a brand name is purchased – for example on the acquisition of a new subsidiary, it is an identifiable intangible asset and should be disclosed separately on the statement of financial position
If the brand is self-developed by the entity, it’s not available to be capitalised and must be written off each year as expenses are incurred in the development of that brand
The risk of material misstatement to which the quote refers is the risk that an intangible asset could be being wrongly excluded from the statement of financial position
But if it’s an internally generated brand (and not one that has been acquired by purchase from outside the entity’s own activities) the correct treatment is to expense it so there is no danger of it being missed off the statement of financial position
Is that better?
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