Measuring Intangible Assets - Apple, Inc - Essay Example

 Measuring Intangible Assets - Apple, Inc. Assets Assets are a resource that is controlled by an entity from which future economic benefits are expected to flow (Weetman 2010). Assets are the main factors on which the business stands and lead to profits that propel the organization. Assets are an important part of the business and therefore are reported in the entity’s financial statements. Financial statements are a collection of reports about an organization’s financial condition. These statements contain the balance sheet, income and cash flow statements ("Accounting tools," 2011). In addition, there are two kinds of assets: tangible and intangible. Tangible assets are fixed assets, which have physical substance and are held for use in the production or supply of goods and services such as lands, buildings, plants and equipment. An intangible asset is an identifiable non-monitory asset without physical substance (Weetman 2010). Examples of intangible assets are trademarks. This essay will examine patents and brand names more thoroughly. Intangible Assets One of the most challenging principles of accounting is the recognition of intangible assets, such as trademarks and patents, and a company’s reputation in its financial statements and balance sheet. In addition, these assets are considered “non-mentionable” or in another sense “un recognized” in the balance sheet due to the failure of the rule of recognition in measuring the cost of the asset. The conventional argument is that the company gains nothing from the intangible asset, such as reputation etc. However. intangible assets can some of the largest assets a company’ acquires. They are also one of the major factors in generating future profits. Apple, Inc. Reputation This essay investigates the value and the importance of intangible assets for Apple Inc. After conducting research and examining its annual report Apple Inc. held considerable interest for me. Apple inc is considered the most valuable company in the world with a market capital of $346 billion (James 2011). One considers whether the world’s number one company has recognized their reputation in the balance sheet and whether the confidence of their consumers over the years has been recognized in the company’s financial division. After examining the company’s annual report I could locate this asset in the company’s balance sheet. Apple’s brand is valued at $153 Billion ("Trademark a name:," 2011); this is almost half of its market capitalization size and is recognized as “un measurable” intangible asset of its trademark, which includes its reputation. In addition, one can argue that the reputation and the trademark of the company do not generate direct profits into the organization as per the assets strict definition. However, in contrasting the company’s reputation with its profit it can be concluded that the company will keep on generating expected profits due to the excellent reputation of its products and services. This could be recorded in its balance sheet as per expected profits by comparing the organization’s historical cost of buying power and profits made as a percentage every year relative to the previous year. Trademarks Trademarks are a legal right to protect products etc, in which the company generates profits. Notably, the profit of this assets “TM” not only generates profit when sold, as per the accounting rules and principles (Weetman 2010), but also generates profits when a legal violation of the trademarks has been breached. Consider the lawsuit between Apple, Inc. and Samsung, where Apple stood to make billions of dollars because of Samsung’s use of Apple’s iPhone technology (Patel, 2011). Examining Samsung’s balance sheet, in the mobile communication division alone they posted revenues of just $11.5 billion in just the second quarter of 2011 (Seifert, 2011); this is directly correlated to their Galaxy Mobile Phone – allegedly a direct violation of Apple’s patent. Examining the significant figures related to this intangible asset and the profit it has generated it seems this asset has met the definition of having economic benefits flowing into the business. Still, a method is required to measure the cost of the asset in the balance sheet; this seems sensible when examining assets such as real estate, machines etc that have a percentage income of the original cost. In addition, an expected calculation mixed with a study of historical costs and asset incomes can be made through contrasting this intangible asset’s income and expected profit with previous factors. In these regards, a professional formula can be generated to measure these intangible “un measurable” assets. CEO Another aspect of the balance sheet that was investigated in the annual report and news headlines was that Apple, Inc. was once almost bankrupt. One considers this is astonishing when it’s realized the company was brought out of bankruptcy to a $349.86 billion net worth. In large part this growth is attributable to Apple’s co-founder and former CEO Steve jobs. After contrasting the company’s growth in Job’s hands and comparing balance sheets from the year 2007 to the year 2011 (25,3 billion) 2008(39.7 billion) 2009(47.5 billion) 2010 ($75.1 billion) 2011(116,3 billion), it concludes to an average of 42.2% growth per year. This demonstrates Jobs brought a tremendous amount of sales into the business; consider the iphone, ipod and the ipad with 108 million, 60 million and 19 million units sold respectively (Thomas, 2011). This demonstrates that under the administration of Steve Jobs the company broadened its horizons rather than just producing Macintosh as it did in the 1980’s and 1990’s. As such, its creative CEO made major contributions to the company’s asset sales and market capital. This is also shown in its stock price in as Apple, Inc’s shares boomed from $82 a share in December 18, 2006 to $426 a share at by the 17th of October 2011 ("Apple inc. stock," 2011). This is a 419% growth in five years. These figures demonstrate that Steve Jobs took the company from bankruptcy to being the most valuable company in the world. This demonstrates that the CEO of this company was one of the company’s greatest assets for generating profits. This asset could be measured by relating its contribution in profits and sales to the business. Conclusion In conclusion, the accounting rules and regulations only recognize intangible assets when the company is sold and not in its annual financial statements and balance sheets. As such, some accountants argue that due to the importance of intangible assets to the business it should be mentioned in the financial statement. The essay argues these intangible assets should be recognized for Apple, Inc. Notably, the intangible assets of the company’s reputation, trademarks, and CEO, are all examined for their central importance in generating profits. A method of recording these assets in the balance sheet is suggested. Ultimately, I believe intangible assets in every company have circumstances that should be analyzed individually and -- due to the seminal importance of these assets in keeping the business engine running – must meet rules of recognition. References Accounting tools. (2011). Retrieved from http://www.accountingtools.com/definition-financial-statemen Apple inc. stock chart. (2011). Retrieved from http://finance.yahoo.com/echarts?s=AAPL Interactive Patel, Nila. (2011). Apple sues samsung: a complete lawsuit analysis. Retrieved from http://www.theverge.com/2011/04/19/apple-sues-samsung-analysis/ Rogers, James. (2011). Apple investors: The impact of steve jobs. Retrieved from http://www.thestreet.com/story/11270342/1/apple-investors-the-impact-of-steve-jobs.html Seifert, Dan. (2011). Samsung shows 45 percent revenue growth in q2 2011. Retrieved from http://www.mobileburn.com/16043/news/samsung-shows-45-percent-revenue-growth-in-q2-2011 Trademark a name: Apple’s brand is now worth half of its market capitalization. (2011). Retrieved from http://tcattorney.typepad.com/ip/2011/05/trademark-a-name.html Thomas, Tristan. (2011). Lawsuit shows apples sales figures. Retrieved from http://www.getyourgadgetsgoing.com/2011/04/19/lawsuit-shows-apples-sales-figures/ Weetman, Pauline. (2010). Financial and management accounting an introduction . (4th ed.). New York: Afton. Read More