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CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets

Compared with an otherwise identical company that developed its brands internally, a company that acquired its brands in a business combination will most likely report:

The acquiring company will most likely show brand intangible assets on its balance sheet at fair value as of the acquisition date. Internally generated brands cannot be capitalized under IFRS, so the comparison company reports no such asset, making the two companies' balance sheets less comparable.

  1. ABrand intangible assets on its balance sheet at fair value at acquisitionCorrect
  2. BLower total assets because acquired brands are expensed
  3. CThe same brand assets because internally generated brands are also capitalized

Explanation

Acquired identifiable intangibles such as brands are recognized at fair value in the acquisition. Internally generated brands are not recognized under IFRS, so the internally developing company reports no brand asset, making the acquirer's assets higher, not lower.

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