Intellectual Property

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

Revenue Income Contract Customer?

Revenue Income Contract Customer? is about IFRS 15 ‘Revenue from contracts with customers’. What is revenue?, What is a contract?, and what is a customer? Here are some of the explanations……

What is revenue?

Revenue has stepped reasoning with regards to the definition of revenue. Revenue is defined as ‘Income arising in the course of an entity’s ordinary activities’. It is something but not the end, income on its own is defined as ‘Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants’.

Income has been defined in the Conceptual Framework for Financial … 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

Asset-based business valuations

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

When properly applied using consistent valuation variables, all asset-based business valuation approach methods should conclude approximately the same value for the subject business enterprise.

Additionally, when properly applied using consistent valuation variables, all asset-based business valuation approach methods may be used to conclude any of the following ownership interests:

  1. Total business enterprise (i.e., total long-term debt and total owners’ equity)
  2. Total business assets (i.e., total subject entity tangible and intangible assets)
  3. Total business owners’ equity (e.g., all classes of equity)
  4. A single class of owners’ equity (e.g., total common stock)
  5. A specific block of owners’ equity (e.g., class B nonvoting stock)

Read More »Asset-based business valuations

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 3 Identify a business

An entity shall determine whether a transaction or other event is a business combination by applying the definition in IFRS 3, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition. See also the accounting treatment acquisition of a business or asset(s) 

Guidance on identifying a business combination and the definition of a business are as follows:

The definition of a business: An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities.

Identifying a business combination [IFRS 3 B5 – B6] IFRS 3 Identify a business

IFRS 3 defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses. An acquirer might obtain control of an acquiree in a variety of ways, for example:

  1. by transferring cash, cash equivalents or other assets (including net assets that constitute a business);
  2. by incurring liabilities; IFRS 3 Identify a business
  3. by issuing equity interests; IFRS 3 Identify a business
  4. by providing more than one type of consideration; or
  5. without transferring consideration, including by contract alone.

A business combination may be structured in a variety of ways for legal, taxation or other reasons, which include but are not limited to:

  1. one or more businesses become subsidiaries of an acquirer or the net assets of one or more businesses are legally merged into the acquirer;
  2. one combining entity transfers its net assets, or its owners transfer their equity interests, to another combining entity or its owners;
  3. all of the combining entities transfer their net assets, or the owners of those entities transfer their equity interests, to a newly formed entity (sometimes referred to as a roll-up or put-together transaction); or
  4. a group of former owners of one of the combining entities obtains control of the combined entity.

Read More »IFRS 3 Identify a business