Intangible Asset Valuation
As per ICAI Valuation Standards, “An intangible asset is an identifiable non-monetary asset without physical substance. The importance of Intangible Assets valuation has gained a lot of importance over the years. Goodwill, Patents, Copyrights Trademarks, Brand Name, customer relationships, trade names, and contracts etc. are commonly recognised intangible assets.
Certain Transactions where the valuation of intangible assets are required are as follows:
- (a) IND AS- 103, Business Combination for purchase price allocation
- (b) IND AS- 36 Impairment of Assets;
- (c) When a business is transferred by Slump Sale for Purchase Price allocation.
- (d) Merger and Acquisition transaction
- (e) financing, when an intangible is used as collateral;
- (f) For Bankruptcy and Restructuring Etc.
- (g) Compensation to be determined for litigation for cases where there has been a breach of contract/right and (h) bankruptcy/restructuring, etc;
- (i) issuance of sweat equity shares against technical know-how
Key Methods of Intangible Asset Valuation
Relief From Royalty Method
The Relief from Royalty method is generally employed in the Valuation of Intangible Assets such as brands, licences and technical know-how, where transacted royalty rates for similar assets are often available. The available rates are then adjusted for asset-specific risks and returns such as geographical use restrictions, brand recall, etc. to arrive at a suitable royalty rate.
Multi-Purpose Excess Earning Method
The Multi-purpose excess earning method measures the economic benefits generated by utilising all assets and then excluded the excess return attributed to specific assets. This method is employed to value intangible assets such as customer relationships etc.
With and Without Method
Under this method cash flows are calculated under two scenarios:
- Present value of cash flows including the Intangible asset
- Present value of Cash Flows excluding the Intangible Assets
This method is generally employed to value intangible assets such as Non-Compete Arrangements etc.
Replacement Cost Method
Under this method, the underlying Intangible Asset is valued on the basis of the cost that a market participant shall have to incur to recreate the intangible asset with almost the same utility as that of the underlying Intangible asset to be valued.
At SPA we are specialists in preparing independent, unbiased and professional practice valuations utilizing internationally accepted valuation methodologies. Under Intangible Assets, some of our commonly used methods include:
- Brand valuation
- Intellectual property valuation
- Valuation of Goodwill
- Asset valuation for purchase price allocation for accounting for business combinations (USGAAP/IFRS)
- Carried Interest valuation
- Derivative Valuation under IFRS