Question :

Sports and Surf label Billabong has the "hardest working brand" in Australia, according to a new report on the value of brands by research and consultancy outfit Brand Finance.

The consultancy calculates the value of intangible assets that are not recorded on the balance sheet and looks at how much of this value comes from the brands owned by companies.

With regards to how hard they are working for the company, it looks at how much the brand contributes to the enterprise value - or the total value including market capitalization and debt capital - of an organization.

In the case of Billabong, the survey states that for every dollar of cash flow, 42c comes from the strength of the brand.

"The Billabong brand is playing a bigger role in generating enterprise value than other brands in the study," says Tim Heberden, managing director of Brand Finance. "This is partly due to the apparel sector being more brand-centric than, say, financial services, but also due to the consumer appeal of Billabong".

Heberden also credits the sports and surf label for managing the brand well and building it up over a number of years. "They have built it up in consumer minds so that it is influencing the regularity that consumers select Billabong and the amount that they pay," he says.

Required:

A Billabong shareholder read this article and has asked you to describe why the value of the brand is not included on Billabong's Balance Sheet. You are needed to:

(1) Check the requirements of both AASB 138 and the AASB Framework in relation to accounting for brands;

(2) Give a response to the shareholder on the basis of these requirements.