Reference no: EM132970579

Tom Parish recently opened an 'Eminent' retail store in Melbourne, his fourth store overall but the first outside of Perth. Tom believes that there is enough demand to expand his business significantly in the next five years and is currently planning to open an 'Eminent' store in Sydney, Melbourne and Brisbane. His optimism is the result of a surge in online sales to customers located outside of Western Australia and he believes this growth is due to the quality of his furniture, and the strong brand recognition that he has created for 'Eminent'. Tom believes his brand is the most important asset that the business possesses and he would like to recognise this on the balance sheet. He recently read that many major brands are valued in the billions of dollars and believes that his 'Eminent' brand is worth at least $10 million. He would therefore like this asset, and an appropriate valuation, included on the balance sheet of the business.

Required

Problem 1: Prepare an email advising Tom of the appropriate accounting treatment of his business brand. Tom may not be happy with your advice, so to make your advice more palatable to him, outline some of the potential adverse consequences of recognising the 'Eminent' brand (e.g. what would need to be done in future periods if the brand was recognised?).