Intangible Asset Valuation -By Vr Avinash Kulkarni

Intangible Asset Valuation 

Asset that is not physical in nature 

Corporate intellectual property (patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today’s marketplace 

Calculated intangible value is a method of valuing a company’s intangible assets. 

This calculation attempts to allocate a fixed value to intangible assets that won’t change according to company’s market value 

To find intangible asset value 

The company should subtract the residual value from the recorded cost and then divide that difference by the useful life of the asset

Each year that value will be netted from the recorded cost on the balance sheet in the account called accumulated amortisation reducing the value of the asset each year 

Sell of intangible asset

Goodwill is a premium paid over the fair asset value during the purchase of company, hence if is tagged to a company or business and can not be sold independently, whereas other intangible assets like licenses, patents etc can be sold or purchased independently 

Measure of intangible asset

Calculate the difference between a company’s market capitalization and it’s stockholders equity as the value of its intellectual capital or intangible asset

Return on assets (ROA) 

Average pre-tax earnings of a company for a period of time are divided by the average tangible assets of the company 

Amortize intangible asset

The cost of all intangible assets developed internally should be charged to expense in the period incurred 

If an intangible asset has a finite useful life, then amortize if over that useful life

The amount to be amortized is it’s, recorded cost, less any residual value

Intangibles are often developed internally without any direct measurable cost that can be capitalized 

Use of intangible asset

1) selling intangible asset. Some general intangibles like business processes can be packaged and sold

2) use them to increase value in the business sale

3) license or assign assets like patents, copyright and trademarks 

4) Amortize intangible asset

Branding is intangible asset

Intangible asset is other asset and not current asset

A Business records the cost of intangible asset in the assets section of its balance sheet only when it purchases in from another party and asset has finite life

The company transfers a portion of assets cost from the balance sheet to an expense on the income statement each accounting period 

These intangible must usually be amortized (spread out) over 15 years

Amortization is used for intangible asset and depreciation is used for tangible asset

Amortization is needed in order to spread the total cost according to the agreement evenly over the life of terms, we amortize 

Intangible asset is not physical, if exists a legal power 

Time itself is an event that decreases a company’s proportion of intangible assets

A licensing right with a defined period period decreases in value year to year because the company that purchased the rights has increasingly less time to profit from this intangible asset

Software license is intangible asset

Intangible value is the present value of excess power of an entity over the normal rate of return

A company that fails to emphasise the importance of intangible assets ruins any competitive advantage they had in the market 

Valuation methods for intangible assets

1) Relief from royalty method (RRM) 

2) Multiperiod Excess Earnings Method (MPEEM) 

3) With and Without Method (WWM) 

4) Real Option Pricing

5) Replacement Cost method less Obsolescence 

Compiled by

Avinash Kulkarni 

Chartered Engineer 

Govt Approved Valuer

Regd Valuer

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