Poet, performer, and critic Claudia La Rocco said at a recent Pave event, “Not everything can be monetized; not everything should be.” There are, indeed, many ways to consider “value,” and monetization is only one metric. However, some things that we would generally consider intangible may show up on a balance sheet. I was reminded of this paradox for two reasons: first, I was preparing to teach a unit on fiscal literacy to my undergraduate arts entrepreneurship class and second, I spoke with Esther Robinson of Art Home at the urging of our mutual friend Aaron Landsman.
Regarding the first, it is generally accepted accounting practice for a company to include “goodwill” as a line on their balance sheet. This item encompasses intangible assets such as reputation, brand loyalty, or even employee satisfaction. The Walt Disney Company, for example, lists more than one third of its total assets as “intangible assets” ($7.4 billion) and “goodwill” ($27.3 billion). Nobody can deny the value of Disney’s brand, and they quite literally account for it financially. To what extent should an individual artist do the same? As one of my students astutely noted, “Why lie to yourself about your financial situation? Relying on branding and customer loyalty is something that becomes a true asset down the line when there is financial/statistical proof that the loyalty exists, not something you just hope for.”
And then there was my conversation with Esther. Her mission in life seems to be to teach artists to build their tangible asset base, primarily through small incremental savings plans and home ownership, so that they can live sustainable lives as artists. Ironically, these tangible assets have a value that is both financial and extra-financial. The financial value is easy to determine, but there is also intangible value in having tangible assets: the value of “peace of mind,” or a “fallback plan.” How freeing of the imagination is it for the artist to know that there is a small amount of money in the bank or that the studio in which they work has “real” value that can be borrowed against or even sold in the event of an emergency? How useful is it to artists’ creative practice to be able to project their cash flow so that the lean times and fat times are predictable, rather than a surprise? Artistic risk becomes more feasible when artists don’t have to worry about money in the act of creation — because they’ve “worried” about it in advance.
 In this context “goodwill” also refers to the difference between purchase price and book value of an acquisition, which accounts for some, but not all, of the goodwill on Disney’s balance sheet. [Disclaimer: I am not a CPA]
It is generally accepted accounting practice for a company to present items on their balance sheet at their historical cost. There are exceptions for diminution in value, but I’m not aware of exceptions for increases in value. I think this means goodwill would appear on a balance sheet only if it were purchased, as you say in your footnote. I’d love to know what other goodwill appears on Disney’s balance sheet, I might learn something valuable.
Disney lists two lines — one for intangible assets and another for goodwill. The link in the post goes right to their annual report. You can scroll down to page 51 for some explanation and page 65 for the consolidated balance sheet. My understanding (but as you know, I’m not a CPA) is that brand recognition, whether in the form of trademark or not, can be considered “goodwill.”