Valuation of intangible assets

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  • 1. Advocates & Legal Consultants PURPOSES AND USES OF INTANGIBLE ASSETS VALUATION Intangible assets are defined as identifiable non monetary assets that cannot be seen, touched or non-monetary physically measured. Intangibles assets have no physical existence and are incapable of being perceived by the sense of touch, as an incorporeal, immaterial and impalpable thing. Intangible assets are categorized under different heads for the purposes of identification and classification. A common categorization of intangible assets follows.1. Marketing related intangible assets. Includes trademarks, trade names, logos, brand names2. Technology related. Includes patents, technical know know-how3. Artistic related. Includes copyrights, literary works, musical compositions4. Data processing related. Includes computer software, software copyr copyrights5. Engineering related. Includes industrial designs, product patents6. Contract related. Includes license agreements, non compete agreements7. Goodwill related. Includes professional goodwill, celebrity goodwill Intangible assets are created over a period of time and attain a value for themselves. Intangible assets are an integral part of the business and hold a lot of value in the valuation of the business. One of the reasons intangible assets are so important is because they can be converted to tangible assets and ultimately generates revenue out of them, like books, software products, patents and inventions can be converted to tangible assets. Intangible asset valuations and economic analyses are performed for transactional as well as notational purposes. Valuation of intangible assets is required to be done for various purposes. Purposes and uses of intangible asset valuation can be broadly categorized into the following heads;1. Financial reporting2. Infringement damages3. Sales transaction support4. Transfer pricing5. Licensing6. Equity raising7. Strategic alliances8. Collateral-based financing based9. Transaction pricing and structuring, for the sale, purchase o license of the intangible asset or10. Financing securitization and collateralization11. Taxation planning and compliance12. Bankruptcy and reorganizational analysis13. Litigation support and dispute resolution14. Corporate planning and governance15. Acquisitions, mergers and sales of businesses, licensing
  • 2. 16. For bankruptcy and reorganization17. Purchases and sales of intangible assets18. For the purposes of tax19. Financial reporting Valuation of intangible asset is done for various purposes. When a business entity goes under a merger and acquisition deal or sells off part of whole of its business, the other party wants to assess the value of the assets of the company. The value of intangible assets forms an integral part of these deals. Assessment of intangible assets is also done for raising of funds for the business. It acts as a property against which the company can raise funds from the bank and other institutes. In a legal case for infringement of IP by other party valuation of assets is required to assess the value of compensation and damages demanded from the other party. Goodwill is another form of intangible asset. Goodwill cannot be separately termed as a property but goodwill earned by a business enterprise over the period of time does value and is assessed for licensing, M&A and other deals. Valuation of intangible assets is also required to be done for the purposes of tax.