What is Brand Amortisation in Bajaj Corp. ?

When a company acquires any brand (only the brand and not its manufacturing facility), the brand becomes an intangible asset of the company. This brand is classified as “trademarks and intellectual properties” under intangible assets section of fixed asset.

Most of the assets are reduced in value over time as they start becoming less efficient and at last, obsolete. This can be done by using depreciation, amortization or impairment.

Depreciation is applicable only for tangible assets.

For intangible assets, there are Amortization and Impairment:-

(i) Amortization is the process of allocating, or spreading out, the cost of an intangible asset over its useful life.

(ii) Impairment occurs when an asset is deemed less valuable than is stated on the balance sheet after amortization. Suppose, the value of an intangible asset after amortisation is 100 million but the fair value is 90 million. So the 10 million will be impaired from the value of this asset.

Bajaj Corp. had acquired Nomarks brand on August 22, 2013 and had also entered into a noncompete agreement with the seller for a period of 3 years (i.e. 7 months of FY14, FY15, FY16, and remaining 5 months of FY17). The management has, estimated the useful life of the brand as 3 years and amortised total cost of Brand INR 140.94crores over the period of three years. The same is shown as amortization of “Trademarks and Intellectual Properties” of fixed assets and under “exceptional items” in Profit and Loss statement. The loan of Rs.100crores that Bajaj had taken for the acquisition will be repaid in Feb 2014. Post this, Bajaj Corp. will once again debt free. Even though the company is amortizing over 36 months, as per law of the tax benefit Bajaj Corp. gets the amount that has been amortized over five years, so it’s actually 20% every year. It does not get the whole advantages of amortizing it over 36 months. Here is have attached the fixed asset schedule of FY14, FY15, FY16 and FY17 and you can see the amortization of trademark.