Customer relationships valuation

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Customer relationships valuation is based on valuation model. Here such a valuation model is presented to value customer contracts and the related customer relationship and the non-contractual customer relationships, as per IFRS 3 Business Combinations.

References (to familiarise yourself with the subject):

Customer contracts and the related customer relationships
Non-contractual customer relationships
Order or production backlog

What are the inputs to the model?


Revenue – represents revenue from existing customer relationships for existing products. Includes contractual and non-contractual relationships (even those without current backlog or commitments). Separate valuation of a backlog revenue intangible asset can be considered if and when such backlog exists.

The model assumes a “market participant” point of view, … Read more

IAS 38 Non-contractual customer relationships

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IAS 38 Non-contractual customer relationships, in Business Combinations, this is a intangible asset and is therefore recognised separately from goodwill, provided that its fair value can be measured reliably. This customer-related intangible asset does not arise from contractual or other legal rights, but meets the definition of an intangible asset because it is separable. IAS 38 Non-contractual customer relationships

IAS 38 Non-contractual customer relationships

If a customer relationship acquired in a business combination does not arise from a contract, the relationship is an intangible asset if it meets the separability criterion. Exchange transactions for the same asset or a similar asset provide evidence of separability of a non-contractual customer relationship and might also provide information about exchange prices that should be considered … Read more

Change in accounting estimate

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Change in accounting estimate – An adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not correction of errors.

Therefore no retrospective restatement of financial statements is needed. The adjustment is recorded in profit or loss in the period it was re-estimated/re-calculated/re-validated.


Changes in accounting policies | Correction of errorsChanges in estimates


Change in accounting estimate (IAS 8 32 – 39) is an accounting rule which is Read more

IFRS 13 Asset accumulation method

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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.

IFRS 13 Asset accumulation methodThis informational content of the asset accumulation method is particularly useful in a transaction, taxation, or controversy context when … Read more

IFRS 13 Adjusted net asset method

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IFRS 13 Adjusted net asset method and the asset accumulation method are both generally accepted business valuation methods of the asset-based business valuation approach.

First, the valuation expert typically starts with the subject company’s GAAP-based balance sheet. The valuation expert will use the balance sheet dated closest to the analysis valuation date. Preferably, the valuation expert will use the company’s balance sheet that was prepared just before the analysis valuation date. IFRS 13 Adjusted net asset method

Second, the valuation expert identifies and separates (for further analysis) any non-operating or excess assets reported on the balance sheet. Such assets may include vacant land or other assets held for investment purposes. Such assets may also include those … Read more

Acquisition of insurance contracts

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Acquisition of insurance contractsAcquisition of insurance contracts – Insurance contracts may be acquired in a transfer (often referred to as a portfolio transfer) or in a business combination, as defined in IFRS 3 Business Combinations.

In summary, insurance contracts acquired in a transfer or a business combination are classified and measured in the same way as those issued by the entity at the date of the combination or transfer, except that the fulfilment cash flows are recognised at that date.

1. Business combinations Acquisition of insurance contracts

IFRS 3 requires a group of insurance contracts acquired in a business combination to be measured at the acquisition date under IFRS 17, rather than at fair value [IFRS 3 31ARead more

Common Elements of Customer Relationships

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Common Elements of Customer Relationships determines whether a (intangible) customer relationship asset exists for IFRS 3 Business Combinations, one should consider several elements that create that intangible asset. Common Elements of Customer Relationships

Required Information

For a customer relationship asset to exist, it should have an informational component or factual information about the customer that is important and useful to the company. Common Elements of Customer Relationships

This information may include such attributes as name, address, telephone number, email address, social security number, customer account number, credit rating, insurance information, or other third-party payer information. It may also include account information, date of first and last purchase, accounts receivable balance, trends, the amounts purchased (last year, greatest, Read more

Calculating the value of an acquisition

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Calculating the value of an acquisition – This is a detailed example of calculating the fair value of an acquisition, using a logical step by step approach and realistic assumptions and determinations based on transaction and market data. Identifying and valuing intangible asset(s) is a broad endeavor and requires careful consideration of; factors specific to each business, the transaction structure, identifying the primary income generating asset, determining the discount rates, estimating the useful lives for identified intangibles. Examples of such intangibles include customer contracts, trademarks, brands, etc.


The DealFortune, Inc. acquired M&P Company on January 1, 2017. Consideration was $30 million cash plus additional contingent consideration, as follows:


  • Below 1 million: Nil Calculating the
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Discount rates for intangible assets

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Discount rates for intangible assets – An important event in accounting for an acquisition in a Business Combination has become the recognition and measurement of intangible assets, other than goodwill.

In the past the difference between the consideration transferred (transaction, purchase or acquisition price) and the fair value of net assets acquired was simply goodwill in many countries.

With increasing transaction prices for acquiring – not so increased – values of net assets, goodwill as a percentage of the transaction price went sky high. Especially during the internet bubble in the late nineteen-nineties goodwill allocations went through the roof.

In the US long time accounting standards in respect of intangible assets (other than goodwill) exist from the … Read more

History of intangible assets

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History of intangible assets – In November 1983, the International Accounting Standards Committee (IASC) approved the International Accounting Standards IAS 22 ‘Accounting for Business Combinations’ that contained the principles for accounting for goodwill. IAS 22, being concerned with business combinations, does not define goodwill. It also does not address the issues of revaluation of goodwill as well as accounting for internally generated goodwill.

For the purpose of improved international accounting standards (IASs), the IASC issued exposure draft (ED 32) “The Comparability of Financial Statements” in January 1989. ED 32 proposed amendments to IAS 22 as well as other IASs. The draft defined goodwill as the difference between the cost of acquisition and the fair values of net … Read more