Accounting For Intangible Assets: There Is Also An Income Statement

Sponsored By Columbia Business School Center for Excellence in Accounting and Security Analysis

Topics:

Accounting

Banking & Capital Markets

Financial Crisis

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Abstract:

Accounting is often criticized for omitting intangible assets from the balance sheet. With value in firms of today flowing less from tangibles assets and more from so-called intangibles -brands, distribution systems, supply chains, "knowledge capital," "organization capital" - accounting is seen as remiss, with high price-to-book ratios as evidence. The remedy often proposed involves booking these intangible assets to the balance sheet.

This paper makes the point that accounting is not necessarily deficient in omitting intangible assets from the balance sheet: there is also an income statement, and the value of intangible (and other) assets can be ascertained from the income statement. For example, although The Coca-Cola Company does not report its brand asset on its balance sheet (and trades about five time book value), earnings from the brand flows through its income statement.

DETAILS

Sponsored by: Columbia Business School Center for Excellence in Accounting and Security Analysis

Released: October 28, 2009

Length: 26 pages

Format: PDF (295 kb)

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