Valuation methodologies for intangible assets.
While the choice of methodology depends on the specific circumstances, the following are commonly used and internationally approved valuation approaches:
1. Income Approach:
✳ Relief from Royalty Method: Projects the future royalty payments that a user would avoid by owning the intangible asset and discounts them to present value.
✳ Multi-Period Excess Earnings Method: Determines the value of an intangible asset by estimating the incremental earnings attributable to the asset and discounting those earnings back to present value.
✳ With and Without Method: Estimates the value of intangible assets under “with” and “without” scenario based on the ownership of subject asset.
2. Cost Approach:
✳ Replacement Cost Method: Estimates the value of an intangible asset by determining the cost to recreate or replace it with a similar asset, adjusted for obsolescence, depreciation, or other relevant factors.
✳ Reproduction Cost Method: Estimates the value of an intangible asset by determining the cost to recreate an identical asset, considering current prices for labor, materials, and overhead.
3. Market Approach:
✳ Comparable Transactions Method: Compares the transaction prices of similar intangible assets in the marketplace to estimate the value of the subject asset, if data is available.
✳ Market price in active market: Basis the data available in active market.
The choice of valuation methodology be based on the specific characteristics of the intangible asset, the availability of data, and the judgment of the valuation professional.
