Introduction

Muslim consumers have been a major factor in the increased demands for food products and services that conform to the Islamic religious principles. These food products are considered “Halal” and that they contain ingredients that are permitted in Islam.

“Halal” Certification System  

“Halal” originates from an Arabic phrase that means allowed or permitted by Islamic law. According to JAKIM (Department of Islamic Development Malaysia),  the Malaysian authority that manages application for “Halal” certification, a “Halal” food means that:

• Does not stem from or consists of any part of or item that is forbidden to Muslims by Islamic law, or animals that have not been slaughtered according to Islamic law.
• Does not contain any substance that is considered impure in Islamic law.
• Is not prepared, processed or manufactured using equipment or utensils that are not free from impurities as defined by Islamic law.
• That, in the preparation, processing or storage stage, does not come in contact with or stored near any kind of food that does not meet the requirements of paragraph (a), (b) or (c) or any substances that are considered impure by Islamic law.

A food product manufacturer would apply to JAKIM for “Halal” certification process. Presently, the “Halal” certification is voluntary in Malaysia. Once approved, a “Halal” certificate would be issued to the successful food manufacturer. The “Halal” certificate is an assurance that a particular product or food premise (restaurant) has been thoroughly investigated and found to conform to Islamic law and therefore is suitable for use or consumed by Muslim consumers. Food products or premises certified as “Halal’ by JAKIM  utilize the registered trademark “Halal’ logo.

The Halal’ logo is usually displayed prominently on the packages of the food product or showed in the signage of a food premise.

“Halal” Certification/Logo Has Become a Valuable Customer-Related Intangible Asset   

In Malaysia, the value of the “Halal” certification/logo can be looked at from the patronage of food outlets. During the recent fasting month, most popular food outlets had fewer patrons, who were mainly non-Muslim customers. This indicates that the value of the “Halal” certification/logo intangible assets could be estimated by the additional volume of Muslim customers that could be generated if the food premises are certified “Halal”.

The value of “Halal” certification/logo would be substantial in countries such as Malaysia and Indonesia which have significant Muslim populations. Multinational food countries such as Nestle and Unilever have used their manufacturing facilities in Malaysia to produce “Halal” certified products with “Halal” logo displayed clearly on their food packages.

The Test of Intangible Asset of “Halal” Certification/Logo for Valuation 

For an intangible asset to exist from a valuation, accounting, and legal perspective, it must possess certain attributes, as defined in Reilly and Schweihs’s (1999) book, Valuing Intangible Assets. The authors define intangible assets as having the following attributes:

• It is not physical in nature;
• have specific identification and recognizable description;
• Have legal existence and legal protection;
• Is subject to private ownership and transferability;
• Have tangible evidence or manifestation of the existence of the intangible assets;
• Was created or came into existence at an identifiable time or as the result of an identifiable event; and
• Is subject to term ination of existence at an identifiable time or as a result of an identifiable event.

Reilly and Nesi (1992) extend this list and state that for an intangible asset to have a quantifiable value from an economic perspective, it must possess certain additional attributes, such as:

• Generate some measurable amount of economic benefits in the form of income or a cost decrease which may be measured in several ways , including net income, net operating income or net cash flows, etc.; and
• Enhance the value of other assets which is it is associated.

Test of Attributes of “Halal” Certification/Logo as Intangible Asset for Valuation 

The table bellows shows the test of attributes of “Halal” certification/logo:

No.	Attributes	Yes or No
1	It is not physical in nature	Yes. It is in the form of “Halal” logo
2	have specific identification and recognizable description	Yes The products are listed as “Halal” in JAKIM’s data base. The “Halal’ logo can be displayed in product packages and premise signage and in brochures.
3	Have legal existence and legal protection	Yes. The “Halal” logo is protected by Malaysian law.
4	Is subject to private ownership and transferability	Yes. The logo is owned by the food product manufacturer.
5	Have tangible evidence or manifestation of the existence of the intangible assets	Yes “Halal” logo displayed on product packages, premises and brochures.
6	Was created or came into existence at an identifiable time or as the result of an identifiable event.	Yes. The “Halal” certification/logo is issued after a inspection is made by JAKIM.
7	Is subject to termination of existence at an identifiable time or as a result of an identifiable event.	Yes. The “Halal” certification/logo is valid for two years and can be renewed by an application to JAKIM.
8	Generate some measurable amount of economic benefits in the form of income or a cost decrease.	Yes. Increased patronage of Muslim consumers, therefore revenue.
9	Enhance the value of other assets which is it is associated.	Yes. The value of business would be increased due to additional market of Muslim consumers.

 

The next article would provide an example the estimated value of the “Halal” certification/logo intangible asset of typical food outlet in Malaysia.

Reference:

Reilly, F. and Nesi, N.A. (1992). Interstate intangible asset transfer, the CPA Journal Online, Vol. 62, No.8, pp. 34-40.

Please note we offer services to help local and foreign food companies to apply the JAKIM’s  “Halal” certification in Malaysia. The JAKIM’s “Halal” logo is widely recognized as a trusted assurance for “Halal” food products. Please be free to contact Dato’ Dr Anuar at datodranuar@gmail.com or visit our website, www.bisonconsulting.net.