Q: Discuss the difficulties relating to the recognition and measurement of intangibles generally and of brands in particular. Refer to the example in Enigma plc in your discussion.
According to IAS 38, an intangible asset defines as “an identifiable, non-monetary asset without physical substance” including brand, computer software, patents and copyrights. As this typical asset has no physical substance, it is really difficult to recognize and measure it. This essay mainly aims to explain the difficulties to recognize and measure generally intangible assets especially the brand and some analyze refer to the Enigma example will be shown.
An item cannot be an intangible asset unless it is an asset in the first place, that is to say
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Considering the brand, it is protected by the trademark law and can only be recognized as intangible assets if they comply with the assets definition. If the brand is acquired in a separate transaction, just like the Enigma example, the Enigma Company spent 7million purchasing the Variations brand, the price that has been paid for the brand is one of the evidence that the brand can be controlled effectively and the future economic benefit will flow to the enterprise. In addition, the cost of the brand usually can be measured reliably and in this case it is 7million. So the brand which was purchased separately in this accounting period has met the recognition requirement and can be treated as an intangible asset. What is more, there is another way to purchase the brand though the business combination. Under this circumstance, the cost of brand is the fair value on the date of the acquisition (Melville, 2011). Furthermore, the fact price that has been paid for the brand is treated as a reflection that economic benefit is expected to flow to the entity in the future. To sum up, the brand acquired in a business combination satisfied the requirements and also can be classified as an intangible asset.
However, it is really difficulty to decide whether the internally generated intangible assets meet the general requirement for recognition. Moreover, the