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IFRS 13 Relief from royalty method

IFRS 13 Relief from royalty methodOne method to determine the market value of Intellectual Property assets like patents, trademarks, and copyrights is to use IFRS 13 Relief from royalty method (also known as Royalty avoidance approach or Royalty Relief approach). This approach determines the value of Intellectual Property assets by estimating what it would cost the business if it had to purchase the Intellectual Property (IP) it uses from an outsider. Other valuation methods are provide here.

This approach requires the valuator to

  1. project future sales of the products that use the technology,
  2. determine an appropriate reasonable royalty rate, and
  3. determine either a present value factor or an appropriate discount rate.

The result is the present value of the Intellectual Property to the company. Read more

How is goodwill different from other intangible assets?

How is goodwill different from other intangible assets? An asset, which has no physical existence such as corporate intellectual properties (patents, trademarks, business methodologies and copyrights), trademarks, patents, software, goodwill and brand recognition are known to be an “Intangible asset”. So goodwill is and is not an intangible asset. Goodwill is a residual, unidentifiable, not separable asset. Intangibles are not that but…. How is goodwill different from other intangible assets

Separate identifiable intangible assets acquired

That is because identifiable intangible assets acquired in a business combination are recognised separately from goodwill [IFRS 3 B31]. An intangible asset is ‘identifiable’ if it arises from contractual or other legal rights or if it is separable [IAS 38 12]. Under certain criteria also … Read more

Licensing

Licensing establishes a customer’s rights to the intellectual property of an entity. Licenses of intellectual property may include, but are not limited to, licenses of any of the following:

  1. Software (other than software subject to a hosting arrangement) and technology
  2. Motion pictures, music, and other forms of media and entertainment
  3. Franchises Licensing intellectual property
  4. Patents, trademarks, and copyrights. Licensing intellectual property

In addition to a promise to grant a license (or licenses) to a customer, an entity may also promise to transfer other goods or services to the customer. Those promises may be explicitly stated in the contract or implied by an entity’s customary business practices, published policies, or specific statements. As with other types of contracts, when a contract Read more

IFRS 13 Asset accumulation method

The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach.

The asset accumulation method is well suited for business and security valuations performed for transaction, taxation, and controversy purposes. All business valuation approaches and methods can indicate the defined value of the subject business entity. IFRS 13 Asset accumulation method

In addition, the asset accumulation method also helps to explain the concluded value—by specifically identifying the value impact of each category of the subject entity assets and liabilities.

This informational content of the asset accumulation method is particularly useful in a transaction, taxation, or controversy context when the particular analysis is used to identify:

  1. which asset
Read more

Adjusted net asset method

This method is used to value a business based on the difference between the fair market value of the business assets and its liabilities. Depending on the particular purpose or circumstances underlying the valuation, this method sometimes uses the replacement or liquidation value of the company assets less the liabilities. Under this method, the analyst adjusts the book value of the assets to fair market value (generally measured as replacement or liquidation value) and then reduces the total adjusted value of assets by the fair market value of all recorded and unrecorded liabilities. Both tangible and identifiable intangible assets are valued in determining total adjusted net assets. If the analyst will be relying on other professional valuators for values of Read more

Intangible valuation approach

Valuation assignments must estimate the value of intangibles, recognising the volatility, on-going creation and problems with protection and enforcement. Business valuation analysts have been independently valuing intangible assets for many years, usually in the context of an exchange between owners (transaction), for estate and gift tax purposes or as part of a litigation assignment. Knowledge underlies the creation of value. Some of the questions that need to be answered include the following:

  • What would a willing buyer pay to employ the intangible asset?
  • What is the useful life of this asset?
  • What portion of the operating income does this asset generate?

Financial reporting concepts require measurement of these separable intangible assets from the overall goodwill in a purchase price allocation, Read more