42 CASE STUDIES MCQS ON INTANGIBLE ASSETS FOR IBBI VALUATION EXAMINATION PRACTICE
WITH A FOCUS ON 1 MARK
General Overview of SFA in Insolvency
Here is a set of 50 Case Study-based Multiple-Choice Questions (MCQs) with answers, designed to test your understanding of the Intangible Assets section in the IBBI (Insolvency and Bankruptcy Board of India) Valuation Examination. These questions focus on the nature, classification, identification, purpose, and valuation approaches for intangible assets, based on real-world case scenarios.
Case Study 1
A company, ABC Ltd., has developed a software product internally. The software is expected to generate revenues for the next 5 years through subscriptions. However, the company has not yet sold any licenses for the software.
1. Based on the nature of the asset, how would you classify this software?
A) Tangible Asset
B) Intangible Asset under Development
C) Acquired Intangible Asset
D) Goodwill
Answer: B) Intangible Asset under Development
2. If ABC Ltd. starts generating revenue through software subscriptions, the software will likely be classified as:
A) Goodwill
B) Intangible Asset with Indefinite Life
C) Intangible Asset with Finite Life
D) Tangible Asset
Answer: C) Intangible Asset with Finite Life
Case Study 2
XYZ Ltd. has acquired a trademark for their new product line, which is expected to be used for 15 years. The trademark will be licensed to other companies to generate revenue, with royalties to be paid to XYZ Ltd.
3. What would be the best approach to valuing the trademark?
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Greenfield Method
D) Cost-Based Method
Answer: B) Relief-from-Royalty Method
4. The trademark is expected to generate annual royalty payments of ₹5 lakhs for 15 years. What would be the key factor in applying the Relief-from-Royalty method for valuation?
A) The historical cost of acquiring the trademark
B) The rate of return on the royalty payments
C) The market value of similar trademarks
D) The discount rate to be applied to future cash flows
Answer: D) The discount rate to be applied to future cash flows
Case Study 3
A technology firm, TechCo, developed a proprietary software solution internally. TechCo has not yet sold the software but expects to launch it in the next 6 months. The software’s expected lifespan is 10 years.
5. The software will be classified as:
A) An Intangible Asset under Development
B) A Tangible Asset
C) A Goodwill Asset
D) An Acquired Intangible Asset
Answer: A) An Intangible Asset under Development
6. TechCo is considering an exit strategy, selling the software as part of a larger transaction. What is the primary purpose of valuing the software in this case?
A) Financial Reporting under Ind AS
B) Amortization Allowance
C) Estate and Gift Tax
D) Transfer of Intangible Asset as Part of Transaction
Answer: D) Transfer of Intangible Asset as Part of Transaction
Case Study 4
A pharmaceutical company, PharmaInc., holds a patent on a life-saving drug. The patent is valid for 10 more years and generates significant revenue through licensing to other companies. PharmaInc. is considering using the patent as collateral for a loan.
7. What valuation method would be most appropriate for valuing the patent for collateral lending?
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Premium Profit Method
D) Greenfield Method
Answer: B) Relief-from-Royalty Method
8. PharmaInc. also needs to report the value of the patent for tax purposes. Which of the following would be the most likely objective for this valuation?
A) Transfer of the patent
B) Financial Reporting under Ind AS
C) Legal and Tax Reporting
D) Collateral Lending
Answer: C) Legal and Tax Reporting
Case Study 5
A well-known brand, Globex, was acquired by a new company, Acme Ltd. The value of the brand was based on the anticipated future cash flows from brand licensing and royalties. Acme Ltd. will continue to use the Globex brand for the next 20 years.
9. The brand Globex will likely be classified as:
A) Intangible Asset with Indefinite Life
B) Goodwill
C) Tangible Asset
D) Intangible Asset with Finite Life
Answer: A) Intangible Asset with Indefinite Life
10. Acme Ltd. wants to calculate the fair value of Globex as part of a potential sale. The best valuation approach to use for this purpose would be:
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Distributor Method
D) Premium Profit Method
Answer: B) Relief-from-Royalty Method
Case Study 6
TechGiant, a software development firm, has developed a new mobile app that is expected to generate annual revenue of ₹50 lakhs for the next 5 years. The app is expected to have a 5-year lifespan and does not generate cash flows independently.
11. Given that the app does not generate cash flows independently, how would you classify it for valuation purposes?
A) Acquired Intangible Asset
B) Internally Generated Intangible Asset
C) Tangible Asset
D) Goodwill
Answer: B) Internally Generated Intangible Asset
12. If TechGiant were to apply the Excess Earnings Method to value the mobile app, which of the following would be the primary consideration in the valuation?
A) Future profits generated by the app after deducting operating costs
B) The historical cost of developing the app
C) The potential market value of the app
D) The app’s physical location and storage cost
Answer: A) Future profits generated by the app after deducting operating costs
Case Study 7
A media company, MediaCo, owns a portfolio of customer relationships built over several years. These relationships are expected to generate steady cash flows in the future, but not as much as other major assets like trademarks and patents.
13. For MediaCo’s customer relationship portfolio, which valuation method is most appropriate?
A) Excess Earnings Method
B) Distributor Method
C) Greenfield Method
D) Relief-from-Royalty Method
Answer: A) Excess Earnings Method
14. If MediaCo wants to determine the reversionary value of the customer relationships, it would need to calculate:
A) The potential market value of the portfolio at the end of its useful life
B) The future expected earnings beyond the asset’s life
C) The future cash flows generated by the asset
D) The amount saved by not paying royalties
Answer: B) The future expected earnings beyond the asset’s life
Case Study 8
In a bankruptcy proceeding, a company, BankruptCo, holds several intangible assets, including a software patent, a brand name, and goodwill. BankruptCo is looking to liquidate these assets.
15. In the context of insolvency, what is the primary purpose of valuing BankruptCo’s intangible assets?
A) To calculate amortization allowance
B) To estimate the liquidation value of the company
C) To assess the tax liability
D) To determine the future income of the company
Answer: B) To estimate the liquidation value of the company
16. In determining the liquidation value of BankruptCo’s brand name, which of the following methods would likely be most useful?
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Market Approach
D) Greenfield Method
Answer: C) Market Approach
Case Study 9
A retail company, ShopEase, is looking to transfer its rights to a franchise agreement for one of its established stores. The franchise agreement will continue to generate revenue for 10 more years.
17. What method would you use to value the franchise agreement for transfer?
A) Relief-from-Royalty Method
B) Distributor Method
C) Excess Earnings Method
D) Greenfield Method
Answer: B) Distributor Method
18. The franchise agreement generates annual revenue of ₹25 lakhs for the next 10 years. Which factor would be most important in applying the Distributor Method?
A) The amount of past revenue from the franchise
B) The expected future earnings from the franchise
C) The replacement cost of the agreement
D) The amortization of the franchise agreement
Answer: B) The expected future earnings from the franchise
Case Study 10
A company, EnergyTech, has developed a new renewable energy technology. The technology is expected to generate substantial revenue over the next 20 years, with a projected lifespan of 25 years.
19. How would you classify the renewable energy technology developed by EnergyTech?
A) Intangible Asset under Development
B) Acquired Intangible Asset
C) Tangible Asset
D) Intangible Asset with Indefinite Life
Answer: A) Intangible Asset under Development
20. EnergyTech plans to use the technology as collateral for a loan. Which of the following methods would be most appropriate for valuing the technology in this context?
A) Relief-from-Royalty Method
B) Excess Earnings Method
C) Greenfield Method
D) Cost-Based Method
Answer: A) Relief-from-Royalty Method
Case Study 11
An automobile company, AutoCorp, has developed a new vehicle model. AutoCorp holds patents related to the technology used in the vehicle’s design. The patents are expected to provide competitive advantages for 10 years, and the company is considering licensing the technology to other manufacturers.
21. How would you classify the patent held by AutoCorp?
A) Tangible Asset
B) Intangible Asset under Development
C) Acquired Intangible Asset
D) Intangible Asset with Finite Life
Answer: D) Intangible Asset with Finite Life
22. If AutoCorp applies the Relief-from-Royalty Method to value the patents, the primary factor considered would be:
A) The historical cost of developing the patents
B) The estimated royalty income that would have been paid by licensees
C) The number of patents held by the company
D) The expected market price of the patents
Answer: B) The estimated royalty income that would have been paid by licensees
Case Study 12
A digital marketing firm, MarkCo, holds a well-established customer list, which it uses to target personalized advertising campaigns. The customer list is expected to generate steady cash flows over the next 5 years, as long as the business continues to operate.
23. Which of the following valuation methods would be most appropriate for valuing the customer list?
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Greenfield Method
D) Premium Profit Method
Answer: A) Excess Earnings Method
24. In applying the Excess Earnings Method, MarkCo would primarily need to:
A) Estimate the future profits directly attributable to the customer list
B) Determine the historical cost of acquiring the customer list
C) Estimate the royalty savings if the customer list were licensed
D) Calculate the replacement cost of building a similar customer list
Answer: A) Estimate the future profits directly attributable to the customer list
Case Study 13
A new startup, StartUpTech, has developed a revolutionary software for data analytics. The software is currently in development and will be completed in 6 months. The company expects to generate significant revenue from licensing and subscription fees over the next 10 years.
25. While StartUpTech is still developing the software, how should it classify the software?
A) Intangible Asset under Development
B) Acquired Intangible Asset
C) Tangible Asset
D) Intangible Asset with Indefinite Life
Answer: A) Intangible Asset under Development
26. Once the software is completed and licensed, what would be the most suitable valuation method to apply for determining the fair value of the software?
A) Excess Earnings Method
B) Greenfield Method
C) Relief-from-Royalty Method
D) Cost-Based Method
Answer: C) Relief-from-Royalty Method
Case Study 14
A financial services company, FinServe, has developed a proprietary algorithm for analyzing market trends. The algorithm is expected to provide continuous benefits for the next 7 years through internal use and occasional licensing to third-party clients.
27. Given that the algorithm will be used internally but may also be licensed, how should it be classified?
A) Intangible Asset under Development
B) Acquired Intangible Asset
C) Intangible Asset with Finite Life
D) Goodwill
Answer: C) Intangible Asset with Finite Life
28. To value the algorithm for financial reporting purposes under Ind AS, which method would likely be most appropriate?
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Distributor Method
D) Premium Profit Method
Answer: A) Excess Earnings Method
Case Study 15
A well-established brand, HealthPlus, is owned by a pharmaceutical company. HealthPlus is one of the leading brands in the health supplements market and has a wide customer base. The brand is expected to generate stable revenue for the next 15 years through product sales and licensing agreements.
29. How would you classify the brand HealthPlus for valuation purposes?
A) Intangible Asset under Development
B) Goodwill
C) Intangible Asset with Indefinite Life
D) Acquired Intangible Asset
Answer: C) Intangible Asset with Indefinite Life
30. Which of the following is the most appropriate method for valuing HealthPlus based on the revenue generated through product sales and licensing agreements?
A) Relief-from-Royalty Method
B) Excess Earnings Method
C) Greenfield Method
D) Distributor Method
Answer: A) Relief-from-Royalty Method
Case Study 16
A company, InnovTech, is seeking a loan and plans to use its proprietary technology as collateral. The technology is expected to generate steady cash flows from licensing for the next 10 years. InnovTech also holds several patents related to this technology.
31. What would be the most appropriate valuation method to apply for determining the value of the proprietary technology for collateral purposes?
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Cost-Based Method
D) Greenfield Method
Answer: B) Relief-from-Royalty Method
32. InnovTech also needs to report the value of the technology for financial reporting under Ind AS. Which of the following valuation approaches is most appropriate for this purpose?
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Market Approach
D) Premium Profit Method
Answer: A) Excess Earnings Method
Case Study 17
A global fashion brand, LuxeWear, has been acquired by a multinational corporation. LuxeWear’s brand is expected to generate steady revenue through product sales for at least 20 years. The brand has a significant market presence.
33. What would be the appropriate classification for LuxeWear’s brand under this scenario?
A) Intangible Asset with Indefinite Life
B) Intangible Asset with Finite Life
C) Goodwill
D) Acquired Intangible Asset
Answer: A) Intangible Asset with Indefinite Life
34. LuxeWear is considering using the brand to secure a loan. Which valuation method would be most suitable for determining the brand’s value in this case?
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Greenfield Method
D) Distributor Method
Answer: B) Relief-from-Royalty Method
Case Study 18
A startup, MedTech, has developed a groundbreaking medical device that it intends to license to large hospitals and clinics. The device has patents and other intellectual property rights related to its technology. The patent is valid for 15 more years.
35. How should MedTech classify its patents and intellectual property rights?
A) Intangible Asset with Indefinite Life
B) Intangible Asset with Finite Life
C) Goodwill
D) Tangible Asset
Answer: B) Intangible Asset with Finite Life
36. To determine the fair value of the intellectual property for licensing purposes, which method would be most appropriate?
A) Relief-from-Royalty Method
B) Excess Earnings Method
C) Premium Profit Method
D) Greenfield Method
Answer: A) Relief-from-Royalty Method
Case Study 19
A retail company, FashionInc., holds a number of trademarks related to its clothing lines. These trademarks are expected to generate revenue for the company through brand recognition and licensing for 10 more years.
37. What would be the most appropriate method for valuing FashionInc.’s trademarks?
A) Excess Earnings Method
B) Relief-from-Royalty Method
C) Market Approach
D) Greenfield Method
Answer: B) Relief-from-Royalty Method
38. In determining the value of the trademarks, what key factor will be considered under the Relief-from-Royalty Method?
A) The cost of creating the trademarks
B) The royalty payments the company avoids by owning the trademarks
C) The market price for similar trademarks
D) The potential market expansion of the trademarks
Answer: B) The royalty payments the company avoids by owning the trademarks
Case Study 20
A well-established publishing company, BookHouse, has a collection of valuable copyrights for books and digital content. The copyrights have an expected lifespan of 20 more years, and BookHouse generates revenue through both book sales and licensing agreements.
39. How should BookHouse classify its copyrights for valuation purposes?
A) Intangible Asset under Development
B) Intangible Asset with Indefinite Life
C) Intangible Asset with Finite Life
D) Goodwill
Answer: C) Intangible Asset with Finite Life
40. For financial reporting purposes, which method would be most appropriate to value the copyrights?
A) Relief-from-Royalty Method
B) Excess Earnings Method
C) Greenfield Method
D) Cost-Based Method
Answer: A) Relief-from-Royalty Method
Case Study 21
A telecom company, NetCom, has developed a proprietary network infrastructure technology. The company plans to sell the technology to other telecom providers and generate substantial revenue from licensing and maintenance contracts.
41. How should the proprietary network technology be classified by NetCom for valuation purposes?
A) Intangible Asset under Development
B) Intangible Asset with Indefinite Life
C) Acquired Intangible Asset
D) Intangible Asset with Finite Life
Answer: D) Intangible Asset with Finite Life
42. To value the proprietary network technology, which of the following methods would be most appropriate?
A) Relief-from-Royalty Method
B) Excess Earnings Method
C) Greenfield Method
D) Market Approach
Answer: A) Relief-from-Royalty Method
