IB Business and
Management
3.5 Intangible Assets (HL)
Learning Outcomes
• Explain the meaning and value to the firm of
different types of intangible assets.
• Understand the difficulties associated with valuing
tangible assets
What are Intangible Assets?
• Intangible assets are the
long-term resources of an
entity, but have no
physical existence.
• Intangible assets
contribute to the disparity
between company value
as per their accounting
records, and company
value as per their market
value
Types of Intangible Assets
• Intangible assets are generally classified into two broad
categories:
• (1) Limited-life intangible assets
– Patents
– Copyrights
– Goodwill
– Brands
• (2) Unlimited-life intangible assets
– Trademarks.
Challenge:
Forbes compile a list of the world’s most
valuable brands.
In Pairs: Write down 20 brands that you
think would be in the top 20.
Let’s see how many you get correct.
House points for the pair who get the
most correct
http://www.forbes.com/powerful-brands/list/
The Brand Chart…. Top 20
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Brand
Apple
Microsoft
Coca-Cola
IBM
Google
McDonald's
General Electric
Intel
Samsung
Louis Vuitton
BMW
Cisco
Oracle
Toyota
AT&T
Mercedes-Benz
Disney
Wal-Mart
Budweiser
Honda
Brand Value ($bil)
104.3
56.7
54.9
50.7
47.3
39.4
34.2
30.9
29.5
28.4
27.9
27.0
26.9
25.6
24.2
23.5
23.1
21.7
21.1
21.1
Look at these
brand values.
How do you
think a brand
can be
valued?
Valuing Brands
• The cost (or cost of creation)
approach relies on calculating what
it would cost another business to
duplicate a given asset today
• The market approach focuses on
past sale transactions of brand
names.
• The income method measures the
future benefits (such as sales, profits
or cost savings) that the intangible
asset will bring to a business, the
timing of the receipt of those
benefits and the length of time that
the business will receive those
benefits.
Why might the valuation of
intangible assets be difficult?
Should the Pringles brand be included on
Kellogg’s balance sheet?
Intangible Assets and the
Balance Sheet
• It is not common practice to
include Intangible assets on
the balance sheet…..
UNLESS they have been
purchased
• The cost of limited life
assets must be spread over a
period of time (unless they
have an unlimited life)
• Eventually their value must
become zero
• This is called amortization
and is similar to depreciation