|

Customer relationships valuation

Last update

Introduction

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

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

Common Elements of Customer Relationships

Last update

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

Customer contracts and the related customer relationships

Last update

Customer contracts and the related customer relationships – In a Business Combinations, these are intangible assets and are therefore recognised separately from goodwill, provided that their fair values can be measured reliably. These marketing-related intangible assets meet the definition of an intangible asset because they arise from contractual or other legal rights.

If an entity establishes relationships with its customers through contracts, those customer relationships arise from contractual rights. Therefore, customer contracts and the related customer relationships acquired in a business combination meet the contractual-legal criterion for identification as intangible assets. This will be the case even if confidentiality or other contractual terms prohibit the sale or transfer of a contract separately from the acquired … Read more

Order or production backlog

Last update

Order or production backlog – In a Business Combinations, this is a intangible asset and is therefore recognised separately from goodwill, provided that its fair values can be measured reliably. This marketing-related intangible asset meets the definition of an intangible asset because it arises from contractual or other legal rights.

An order or production backlog arises from contracts such as purchase or sales orders. An order or production backlog acquired in a business combination meets the contractual-legal criterion for identification as an intangible asset, even if the purchase or sales orders are cancellable

An example in a business combination

All the assets and liabilities of Shisa Nyama were deemed to be fairly valued on acquisition date, … Read more