Intangible Asset Valuations including Goodwill
What are Intangible Assets and Intellectual
Intangible assets or intellectual property are the “brainpower"
that formulates the product to be produced whereas the tangible
or physical assets are the "strength" that are actually
involved in the product’s production.
Intangible assets fall into four broad categories,
they are: Market Related, Customer related, Contractual and Technology
How To Value Intangibles Assets and Intellectual
There are three primary methods to value intangibles: the Income
approach, the Market Comparable approach, and the Cost approach.
Numerous modifications of these approaches have been developed over
the years. The value of an intangible may be based on using one or
various combinations of these approaches.
Reasons to have a valuation of Intangible Assets and
- An intangible asset and purchase price allocation appraisal
should be performed when accounting for business combinations
under ASC 805.
- For a Transfer pricing study Asset Valuation
(IRS Section 482) or royalty rate
study which involves licensing of an intangible asset such as
a trademark, patent or technology.
- An intangible asset valuation should be performed
in order to comply with the goodwill and other intangible assets
impairment testing requirement of ASC 350.
- An intangible asset valuation should be performed when accounting
for the impairment or disposal of long-lived assets under FASB
Remaining Useful Life of Intangible Assets
or Intellectual Property
For Fair Value financial reporting purposes, the remaining useful life determination
of intangible assets is required. Estimating the useful life is
important in determining the value. Generally the longer the life,
the more valuable the intangible asset.
For IRS Federal income tax purposes, the remaining useful life determination
of intangible assets and intellectual property is as important as
the appraisal. The Internal Revenue Service allows for the amortization
of intangible assets only when the taxpayer establishes that the
assets have an ascertainable value separate and distinct from goodwill,
and have a limited useful life whose duration can be ascertained
with reasonable accuracy. In order to prove that these intangible
assets are wasting and have a reasonably determinable useful life,
we perform an obsolescence, decay and lifing analysis.
If you would like additional assistance or would like to discuss a potential intangible asset valuation,
please contact Cambridge Partners & Associates for an initial evaluation consultation.
Frequently Asked Questions
regarding Intangible Asset Valuations