The Report of the Committee on Brand Valuation

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The Report of the Committee on Brand Valuation

The Ministry of Economy, Trade and Industry The Government of Japan June 24, 2002

Contents of the Report
Members of the Committee on Brand Valuation Summary The Report of the Committee on Brand Valuation I II Publication of the Report Definition of Brand II-1 II-2 II-3 III Concept of Brand Concept of Brand Value Corporate Brand and Product Brand 5 7 21 22 25 25 25 26 29 29 29 29 31 33 34 34 35 36 36 38 39 40 41 41 43 43 49 58 58

Brand Royalty Fee: Current Practice and Issues

III-1 Current Practice in Charging Brand Royalty Fee III-2 Issues on the Payment and Receipt of Brand Royalty Fee III-2-1 Issues related to the Commercial Code III-2-2 Issues related to the Corporation Tax Laws III-3 Issues on the Calculation of Brand Royalty Fee IV Capitalization of Brands: Implications and Issues IV-1 Capitalization of Purchased Brands IV-2 Capitalization of Internally Generated Brands IV-3 Issues on the Capitalization of Internally Generated Brands IV-3-1 IV-3-2 IV-3-3 Issues related to Business Accounting regarding Capitalization of Internally Generated Brands Issues related to the Commercial Code regarding Capitalization of Internally Generated Brands Issues related to the Corporation Tax Laws regarding Capitalization of Internally Generated Brands IV-4 Treatment of Institutional Issues V Results and Analysis of the Questionnaire on Brand Valuation V-1 V-2 Outline of the Questionnaire Results and Analysis Results of the Awareness and Recognition Results of the Current Practices

V-2-1 V-2-2 VI

Brand Valuation Model

VI-1 Approaches to Brand Valuation

VI-1-1

Residual Approach (1) Cost Approach (2) Market Approach (3) Income Approach ‡ @ ‡ A Royalty Exemption Method Price Premium Method

58 58 58 59 59 60 60 60 61 63 64 65 66 67 67 72 74 78 78 80 80 81 82 83 84 84 85 86 91 93 93 97

VI-1-2 Independent Valuation Approach

VI-1-3 Examination of Valuation Methodology under Income Approach (1) Calculation Methodology for Annual Cash Flow s (2) Techniques for Estimating Future Cash Flows (3) Calculation Methodology for Discount Rates (4) Duration of Cash Flows VI-2 Basic Concept of Brand Valuation Model VI-3 Definition of Key Drivers VI-3-1 VI-3-3 Prestige Driver Expansion Driver VI-3-2 Loyalty Driver VI-4 Brand Valuation Model VI-5 Constraints on the Brand Valuation Model VI-6 Review of the Brand Valuation Model based on Simulations VI-6-1 VI-6-2 Reviewing the Time Series Regression Reviewing the Prestige Driver

VI-6-3 Reviewing the Loyalty Driver VI-6-4 Reviewing the Expansion Driver VII Brand Management Model VII-1 Brand Management Model and its Implications VII-2 Analysis of Brand Valuation Amount and the Questionnaire Results VII-3 Use of Brand Value Chart and Brand Fundamentals within the Brand Value Board Framework VIII Expected Practices in Charging Brand Royalty Fee IX Disclosure of Brand Assets IX-1 Standards for Accounting for Brand as Assets IX-2 Disclosure of Brand Assets

Endnote Discussion Procedures Appendices Appendix 1 Questionnaire on Brand Valuation Questionnaire Template

100 103 111 112

Appendix 2 Classification of Industries Used in the Simulation Exercise 122 Appendix 3 Standard Figures by Industries Used in the Simulation Exercise 125

Members of the Committee on Brand Valuation
Chairman of the Committee Yoshikuni Hirose, Dr. (Professor of Accounting, School of Commerce, Waseda University)

Members of the Committee Akiko Fujita (Professor of Accounting, Faculty of Economics, Meiji Gakuin University) Makoto Fujita (Professor of Management, School of Commerce, Waseda University) Keigo Fuchi (Assistant Professor of Law, Gakushuin University) Shinya Fukuda (Certified Public Accountant, Deloitte Touche Tomatsu) Naofumi Hara (Senior General Manager, Brand Strategy Department, Global Hub, Sony Corporation) Naoki Hirai (Manager, Financial Research Center, Nomura Securities Co., Ltd.) Toshiro Hiromoto, Dr. (Professor of...
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