Valuation of Intangible Assets Services
Valuation of Intangible Assets basically means ascertaining the value of non-physical assets such as patents, brand reputation, goodwill, and customer relationships. This evaluation is conducted by entities or individuals to determine the worth of intangible assets. This helps them make informed decisions about financial reporting, investments, strategic planning, acquisitions or mergers, and licensing deals.
In Delhi NCR, India, Sapient Services offers a comprehensive valuation of intangible assets. Valuation of intangible assets is significant because it provides for precision in financial representation.
What Are Intangible Assets?
Intangible assets are considered to be non-physical resources that a business owns. They include intellectual property like copyrights, patents, and trademarks, as well as customer loyalty, brand recognition, and reputation.
Intangible assets offer a competitive advantage as they distinguish a business from its competitors. They provide future economic benefits and immense value to customers. As a solopreneur or small business owner, you need to understand an intangible asset’s value and how you can leverage it to help your business grow.
Common Examples of These Assets Include:
- Technology Assets: Confidential formulas, software, and databases.
- Assets Related to Brand: Marketing goodwill and brand recognition.
- Contract-Based and Customer Centric Assets: Customer databases and licensing rights.
- Creative and Artistic Assets: Plays, artwork, films, and books.
Why Valuation of Intangible Assets is Important
Financial Reporting and Compliance
In various financial reports, like balance sheets and accounting documents, plant and machinery valuation is included. The financial report contains the details regarding the valuation of the machinery and plants to determine their worthiness.
Strategic Decision-Making
By knowing the monetary contribution of intangible assets, companies can:
- Maximize their branding and marketing-related plans.
- Enhance efficiency in operations and profitability in the long term.
- Allocate resources to intangible assets that hold high value.
Licensing and Transactions
Companies can benefit from intangible asset valuation in the following ways:
- Transfer of technology agreements and negotiating licensing.
- Structuring business-related transactions on asset contribution.
- Taxation and Regulatory Requirements
- Valuation should be correct for compliance during acquisitions and mergers.
Methods for Valuing Intangible Assets
The Asset Approach
In intangible asset valuation, the asset approach is considered to be a basic method. It focuses on assessing the business ‘s value based on its liabilities and assets. With distinct tangible assets, this method can be useful for valuing businesses. For intangible assets, it can be adapted through certain techniques.
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The Market Approach
The market approach means comparing the business that is in question with similar types of businesses that have been publicly traded or sold. Based on real-world transactions, this approach gives you a standard, making it an ideal method for assessing the intangible assets’ value. This approach mainly utilizes the guideline transaction method and the guideline public company method.
The Income Approach
For intangible asset valuation, the income approach is a great method. It focuses on the income that the business generates and future economic benefits.
Relief from Royalty Method (RRM)
This strategy is used to value intellectual property, like trademarks. It entails figuring out how much amount a business would pay in royalties in exchange for using it. At this fictitious royalty rate, the profits made by the business from using the trademark are taxed subsequently.
Multi-Period Excess Earnings Method (MPEEM)
This is the most common method that is used for valuing intangible assets that are related to customers. Its main focus is on the economic benefits that will be generated by intangible assets. It calculates these future cash flows present value, offering an estimate of the worth of the asset.
Real Option Pricing
Future potential assets, such as patents that are not contributing to any cash flow currently.
Replacement Cost Method
It is used to calculate the value that is based on the cost that is needed to replace the asset.
Hybrid Approaches
This method combines various approaches, including qualitative and income-related assessments for realistic valuation.
Regulatory Framework and Standards
At Sapient Services, we comply with all the national and international standards.
- IAS 38 – Intangible Assets: This is a significant criterion of amortization, impairment, and recognition.
- IND AS 38: For domestic reporting, this is the equivalent of Indian IAS 38.
- IVS 210 and ICAI Valuation Standard 302: Both are crucial intangible valuation guidelines. Its primary concern is to measure economic benefits.
- IFRS 3 – Business Combinations: It is applied in accounting for goodwill while making acquisitions
Benefits of Choosing Sapient Services for Intangible Asset Valuation
Regulatory Compliance
We comply with all national and international standards, including IAS 38, IVS 210, IND AS 38, IFRS 3, and ICAI standards.
Expertise in all sectors
We offer our services to all kinds of industries, ranging from manufacturing to technology, healthcare, and education.
Correct Goodwill Valuation
We provide correct goodwill valuation for taxation purposes and companies.
Different Valuation Methods
We use various valuation methods such as hybrid, asset, cost, real option pricing, and Relief from Royalty Method (RRM).
Conclusion
Intangible assets are the assets that do not have a physical presence but come with many future economic benefits that are solely based on benefits or rights accruing to the owner of the asset. They generate revenues by offering significant value in future revenue exchange or production because of the right of use or ownership. Accurate valuation helps businesses make strategic decisions.
FREQUENTLY ASKED QUESTIONS (FAQ)
What are the different types of intangible assets?
Intangible assets are of different types, including purchased intangible assets such as copyrights, patent licenses, organization costs, copyrights, and leaseholds. Internally generated intangible assets include research and development and trademarks.
How can an intangible asset be identified?
You can identify an intangible asset by its possibility to generate future economic benefits and its ability to be transferred or sold.
What are the different types of intangible assets?
The commonly found intangible assets include trade secrets, patents, copyrights, trademarks, goodwill, customer relationships, and brand recognition.
What is the difference between intangible and tangible assets?
Tangible assets basically mean physical assets such as equipment, land, and buildings. Intangible assets are considered to be non-physical assets that do not hold value to a company in the long term, such as customer relationships, patents, copyrights, trademarks, goodwill, and brand recognition.
What are the methods for valuing intangible assets?
The methods that can be used for valuing intangible assets include asset, market, income, Relief from Royalty Method (RRM), Multi-Period Excess Earnings Method (MPEEM), real option pricing, and a hybrid approach.
What are the purposes of intangible assets valuation?
The main purposes of intangible assets valuation include customer contracts, corporate goodwill, franchise agreements, license agreements, trademarks, order backlog, and customer relationships.
Why should you opt for Sapient Services' asset valuation services?
You should opt for Sapient Services’ asset valuation services because they have an expert team with expertise in all sectors, and they comply with all national and international standards.
What are the benefits of availing asset valuation services?
Asset valuation services come with various benefits, such as proactive risk management, strategic resource allocation, and financial reporting with complete confidence.