Accountants still sometimes talk about assets as “something you can drop on the floor.” If you can drop it on the floor it is solid, with shape and form. Therefore it can be measured and weighed. Further, it is either made or bought, so there is a known cost attached to it.
Coming to terms with a still relatively new class of asset that is hard to measure, either physically or financially, has been a long, hard process that was resisted for many years. Ultimately, however, even the most conservative accountants have had to acknowledge that enterprises have value beyond the tangible and that the intangible component has intrinsic value. This grudging acceptance has been enshrined in accounting standards that guide the preparation of financial statements, specifically in the case of business acquisitions. The problem is that the change has been piecemeal, resulting in some peculiar inconsistencies.
There is a conflict between these two standards: the one related to M&A requires the intangibles that came with the transaction to be valued at a price that willing buyers and sellers in a market would be likely to pay. That is called fair value and is based on a forward-looking estimate of the cash flows the asset will generate. This approach is now well understood in financial circles, and assets such as brands are now routinely valued. In fact,