Intangible Valuation Services

corporate and regulatory services

Intangible Valuation Services

Valuation involves analysis of a company and so intangible assets cannot be ignored. Various intangible assets like, trademark, certification marks, designs etc. are considered as important assets since they assist immensely in enhancing sale of the business. It can be said without an iota of doubt that brands, technologies, formulae, software’s etc. are crucial to company’s success. Keeping this vital point in view, this lesson has focused upon almost all forms of intangible assets. Intangible asset valuations are used, in particular, in accounting practice to recognise assets on business combinations at fair values, which is aimed at improving acquisition accounting transparency. For example, intangible asset valuations can be required for International Financial Reporting Standard 3 (IFRS 3) on business combinations and International Accounting Standard 38 (IAS 38) on intangible assets. There are equivalent US accounting standards, but the accounting provisions are not the same in all respects.

Intangible Asset Valuation

 

Intangible asset valuations are performed for a variety of purposes. It is the valuer’s responsibility to understand the purpose of a valuation and whether intangible assets should be valued, whether separately or grouped with other assets. Examples of intangible assets are:

 

  1. i) Brands
  2. ii) Patents

iii) Trademarks

  1. iv) Designs
  2. v) Copyrights

 

Valuation component is provided below:

 

(a) For financial reporting purposes, valuations of intangible assets are often required in connection with accounting for business combinations, asset acquisitions and sales, and impairment analysis.

 

(b) For tax reporting purposes, intangible asset valuations are frequently needed for transfer pricing analyses, estate and gift tax planning and reporting, and ad valorem taxation analyses.

 

(c) Intangible assets may be the subject of litigation, requiring valuation analysis in circumstances such as shareholder disputes, damage calculations and marital dissolutions (divorce).

 

(d) Other statutory or legal events may require the valuation of intangible assets such as compulsory purchases/eminent domain proceedings.

(e) Valuers are often asked to value intangible assets as part of general consulting, collateral lending and transactional support engagements.

 

Valuation Of Brands

 

Brands are seen as strategic assets whose value is strongly correlated to companies’ value. The relevance of brand valuation goes from marketing portfolio optimization and strategic positioning, M&A pricing, to the day-to-day business for royalty rates definition. The difficulty in brand valuation starts from the definition of brand. Each enterprise has a name which defines its identity, but some brands goes beyond a simple label. In some cases, the brands become evocative of a concept, a product and a style, they represent a guarantee. Moreover, the various methodologies of valuation lead to discrepancies, depending also on the valuator and the valuation variables. Three different financial approaches to brand valuation can be identified:

  1. Cost-based Approach:
  2. Market-based Approach:
  3. Income-based Approach: