BRAND VALUATION AND

ACCOUTING
&
INFLATION ACCONTING

INC
GUNTUR
PUTTU GURU PRASAD
BRAND VALUATION
ACCOUTING
 Several major companies believe
that their brands are there most
valuable assets. This explains the
increasing importance placed on
brand creation and management .
This also explains the reason for
paying vast sums of money to
acquire brand-rich companies.
BRAND VALUATION
ACCOUTING
 The idea of brands as financial assets
emerged in mid eighties. As brands
have significant financial value, their
absence from the balance sheet distorts
the true financial position of a company.
Hence ,in order to ensure that the
market valuation of a company is
reflective of its true intrinsic worth it has
become necessary for companies to
determine the values of their brands
Methods of brand
valuation
 Earnings valuation method
 1.Determine the brand earnings
 2. Determine the brand strength or
brand earnings multiple
 3. Compute the brand value by
multiplying the brand earnings
with the multiple derived in step 2
brand earnings multiple

 An assessment of brand strength

requires detailed review of the
brand, its positioning, customer
loyalty, the markets in which it
operates, competition, stability,
long-term trends , statutory
protection, brand management by
the companies, etc.
Based upon the above factors, an
appropriate multiplier is
determined
Methods of brand
valuation
 Cost method:- this method
involves stating the brand valued
at its cost to the company. This is
relatively easy when the brands
are acquired. The money paid to
buy the brands can be directly
stated. It is more difficult to value
the brand when the brand has
been developed in house by the
company
Accounting for price level
changes
 Inflation is the overall upward
movement of prices of goods and
services which is measured by
consumer price index and producer
price index. Consumer price index is an
inflationary indicator that measures
change in the cost of a fixed basket of
products and services and producer
price index is an inflationary indicator to
evaluate whole sale price levels in the
economy
Need for inflation
accounting
 Inflation accounting can be simply
stated at the methods of
recognizing and stating the effects
of inflation in the final accounts of
a corporate entity
Limitations of historical
accounting
 1. it does not differentiates between
holding gains and operating gains
 2. it violates the law of additivity
 3. it do not take in to account the fact
that purchasing power of the money
does not remain the same
 4.the costs are not relevant as they do
not match with the current costs of
assets which lead to insufficient
provision of depreciation and un
realistic profits
Objectives of inflation
accounting
 1. To correct the conventional
accounting by recognizing the fact
that the purchasing power of
money reduces day by day due to
inflation
 2. To reduce the financial
statements to real terms and
arrive at the actual performance
and position of the corporate entity
Advantages of inflation
accounting
 1. Eliminating holding gains and
differentiating between operating
and holding gains, thus arriving at
the actual profits
 2. The value of the assets will be
more accurate and closer to its
intrinsic value
 3. Better inter firm and inter period
comparisons can be made
Approaches to accounting
for price level changes
 CURRENT PURCHASING POWER
ACCOUNTING
 CURRENT COST ACCOUNTING
 HYBRID METHOD
THE ADVANTAGES OF C P
PA
 UNDER CPPA the historical
accounting data is adjusted on the
basis of the general price index
which refers to the changes in the
prices of the economy as a whole .
In India whole sale price index of
the reserve bank is taken as the
basis
Disadvantages of CCPA
 It is found to be less useful in share
price movement
 Movement of prices of goods may
not reflect specific price
movements
The advantages of CCA
 Under CCA method the adoption
current cost is recommended to
overcome the drawbacks of CCPA.
In this methods the current values
of individual items are taken as the
basis of preparing profit and loss
account and balance sheet
Disadvantages of CCA
 It is more complex and expensive
and time consuming
 It is opposed by auditors as it is
more subjective
 Replacement cost is meaning less
when the firm does not choose to
replace the asset
The advantages of hybrid
method
 Hybrid method approach of
accounting for price level changes
combines the CPPA and CCA
approaches .
 Financial statements can prepared
by combining the factors of CCA
and CPPA
The disadvantages of
hybrid method
 It is more complex and expensive
and time consuming
 It is not proposed by any
institutional body as CCA and CPPA
approaches have been
recommended by institutional
bodies