Peer Responses

Responding to person 1

Hello,

Great work with your post. Your comparison of the treatment of intangible assets by Nike Incorporation and Under Armour offers valuable insights into their categorization and disclosure. Nike integrates R&D expenses into operating overheads, while Under Armour does not track them separately from production costs. Ideally, this is a clear difference in reporting between the two companies: Peer Responses.

One notable element in your discussion post is the significantly low composition of intangible assets in the total assets portfolio by both companies. Essentially, this indicates the companies’ business models primarily focus on physical goods. The analysis clearly shows that the method adopted in reporting influences the financial transparency attained at the end (Babar & Habib, 2021).

For instance, the disclosure of intangible assets by Nike and Under Armour offers insight into their financial well-being. Notably, this can influence the investment decisions of interested investors.

References

Babar, M., & Habib, A. (2021). Product market competition in accounting, finance, and corporate governance: A review of the literature. International Review of Financial Analysis, 73, 101607. https://doi.org/10.1016/j.irfa.2020.101607

Responding to Person 2

Hello,

This is a great post analyzing Stores and TJX companies. Your analysis offers an interesting comparison of the disclosure treatment of intangible assets by the two companies. The fact that Ross Stores does not openly report any intangible assets is notable. However, that is not the case for TJX Companies since goodwill is included in the balance sheet.

Further, into your discussion, potential capitalization of research and development costs is done under specific conditions. Essentially, this adds weight to the importance of accurate reporting practices. In addition, it is important to understand whether an operating lease on the right-of-use of assets indeed qualifies as an intangible asset.

Notably, this is so because traditionally operating leases are not considered to be intangible assets even though they are classified as non-current assets (Raoli, 2021). In my view, their classification will solely depend on the organization’s policies and accounting principles. Thus, it is crucial to disclose the rules applied in the notes section.

References

Raoli, E. (2021). Lease accounting literature review and hypotheses development. In IFRS 16 and Corporate Financial Performance in Italy: An Empirical Post-Implementation Analysis (pp. 39–63). Springer. https://doi.org/10.1007/978-3-030-71633-2_3

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Reply to the two persons.

Person 1

1. Nike reports their intangible assets under the title identifiable intangible assets, net, on their balance sheet. Intangible assets are reported as a single-line item, however, Nike reports their R & D into a broader category. Costs related to research and development are categorized under operating overhead expense, along with many other smaller expenses.This account can be found on the company’s income statement. Nike goes into more depth in their notes about what is included in and how they report their intangible assets.

Under Armour reports their intangible assets on their balance sheet under intangible assets, net. They also indicate next to this line that this account has a note (Note 7) that describes it in more detail. Unlike Nike, Under Armour doesn’t specifically record anything under R & D. They do state in their notes that costs to design and develop products are not tracked separately from normal production costs.

Companies can report many factors about intangible assets including what classification their intangible assets fall under (identifiable or unidentifiable), whether they were acquired or internally developed, the valuation or measurement of these assets, and if they were amortized or reviewed for impairment. The intangible assets of a company are recorded on the balance sheet with their other assets. Research and development costs, if any, are expensed as incurred.

Companies don’t need to record much under this topic besides the costs. These costs are found on the company’s income statement under operating expenses.

2. Nothing really surprised me about either companies’ reporting, but I did find Under Armour’s note about intangible assets very helpful and interesting. They really go into depth about what is included in this account, such as which of the intangible assets are subject to amortization and which ones are not. They also note the useful lives of each of these assets which I didn’t see in Nike’s 10-K.
3. In 2024, Nike’s intangible assets represented about .68% of their total assets. Under Armour’s intangible assets made up about .15% of their total assets in 2024. For both companies, this means that most of the assets that they do have are physical or tangible such as inventory, buildings, cash, and other items.This is mostly likely the case since both companies sell physical products to customers, so a lot of the assets that they do have include these products. This means they rely more on tangible assets rather than intangible assets to operate.

Person 2

Ross Stores, Inc. & TJX Companies, Inc.

While reviewing Ross Stores’ 10-K report and notes, I was unsuccessful in identifying any intangible assets. These intangible assets, including goodwill, trademarks, patents, and licenses, are typically found in the balance sheet. No mention was made of any intangible assets or research and development in the notes. On the other hand, I examined the notes and balance sheet of TJX Companies and identified their intangible assets.

In their balance sheet, they disclosed goodwill, but the income statement did not contain any information regarding it. The annotations to the financial statements contain information regarding research and development. The two companies do not provide any information regarding their research and development initiatives. It is mandatory to acknowledge all research and development expenses as incurred expenses.

Peer Responses

It is possible that certain costs associated with research and development that could be repurposed in the future could actually be capitalized. On the other hand, this capitalization is subject to accurate accounting requirements and laws that demand an in-depth examination of the future economic advantages of such purchases. To be fully compliant with disclosure restrictions, businesses must therefore thoroughly assess and promote any costs on which they want to capitalize.

I did not observe any noteworthy information while reviewing the 10K report and notes of Ross Stores and TJX Companies. All I can ask is whether an operating lease right-of-use asset is considered an intangible asset. Is any right of use considered an intangible asset?

In terms of TJX Companies, I would have to state that the percentage of intangible assets is 10%.Finding intangible assets is essential to assisting business owners in their endeavors. Many of the intangible assets that small and medium-sized enterprises hold serve as vital to their achievement despite the fact they aren’t necessarily visible on their balance sheet. Advisors could enhance entrepreneur’s potential of achieving achievement through recognizing these valuable assets and implementing them into their value talks.

They are losing out on a chance to increase wealth through reviewing the balance sheets and financial statement notes of TJX Company. This supervision restricts the ability of businesses to effectively utilize their advantages and position in the industry. Recognizing and employing intangible assets may offer an establishment an edge over competitors along with raise their overall value.

https://www.sec.gov/cgi-bin/viewer?action=view&cik=109198&accession_number=0000109198-24-000059&xbrl_type=v#