Intangible Assets on Valuation with Case Study

1. 1

2. Subject matter of Valuation
 Any Property (means both Tangible and Intangible)
 Stocks
 Shares
 Debentures
 Securities
 Goodwill
 Any other assets (means any other Tangible and
Intangible assets which are not covered above)
 Net worth of a company
 Liabilities
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3. Broad forms of Security Interests
Forms of
security
interests
Specific property
General property
Tangible
property
Future
property
Intangible
property
Movable property Immovable
property
Possessory Interest
Non-possessory
interest
Mortgage Charge or lien
Possessio
n
Nature of
interest
Quasi-
security
interests
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4. Valuation of
‘INTANGIBLE ASSETS’
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5. Intangibles Valuation
5
Intangibles - Valuation

6. 6
What is the Need for Valuation
???

7. Need for valuation
Investors
To analyse
best
investment
option
INVESTORS SHARE HOLDERS
To assign true worth of the company
MANAGEMENT
To measure performance of the company
INDUSTRYAS A WHOLE
For the growth of the economy
REGULATORS
To maintain transparency,
Perfect compliance&
Better employment
To analyse best investment option
Financiers
to assess the borrowing
capacity of a company when
arranging funding facilities
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8. LEGAL PROVISIONS
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9. LEGAL PROVISIONS RELATING TO
INTANGIBLE ASSETS –INTERNATIONAL
Legal
provisions –
International
• WIPO – World Intellectual Property Rights
Organization
• The Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS)
• THE PATENT COOPERATION TREATY
• International Financial Reporting
Standards(IFRS)
• IAS38 – Intangible Assets
• IAS13 – Fair value Measurement
• IAS 36 – Impairment of Assets
• IFRS 3 – Business Combinations
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10. Legal Provisions relating to Intangible
Assets- National
Patents (Amendment) Act 2005 & Patents (Amendment) Rules, 2006
Trade Marks Act, 1999 & Trade Marks Rules 2002
Copyright Amendment Act 2012
Indian Accounting Standards
• AS26 – Intangible Assets- Recognition, Measurement, Amortisation & Disclosures
• AS14 –Valuation of Intangible Assets acquired by way of Amalgamation
• AS12 – Valuation of Intangible Assets acquired by way of Government Grant
• AS22 – Deferred Tax Assets
• AS19 – Accounting for Leases
• AS21 – Goodwill arising on consolidation
Indian Companies Act
Insolvency and Bankruptcy Code 2016
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11. COMPANIES ACT
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12. Whether valuation and disclosure of Intangible Assets
mandatory or not as per the Companies Act?
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13. 13
IFRS-IAS 38
SEC - 134
SCHEDULE - VI

14. Disclosure of Intangible Assets under Companies
Act,2013
• (i) Classification shall be given as:
• (a) Goodwill;
• (b) Brands /trademarks;
• (c) Computer software;
• (d) Mastheads and publishing titles;
• (e) Mining rights;
• (f) Copyrights, and patents and other intellectual
property rights, services
• and operating rights;
• (g) Recipes, formulae, models, designs and
prototypes;
• (h) Licences and franchise;
• (i) Others (specify nature).
Intangible
assets
(Schedule
III)
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15. Disclosures
under
IFRS – IAS38
• Different classes of intangible assets
• Distinguish between internally
generated and other intangible assets
• Useful life
• Amortisation method
• Gross and net carrying amounts
• Additions and deletions
• Increases or decreases due to
impairment recognised in the other
comprehensive income
• Impairment losses
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16. 16
Revised Schedule VI
• Ministry of Corporate Affairs (MCA) has issued revised
Schedule VI
• Provide new format for preparation and presentation of
financial statements
• As per Revised Schedule VI, the disclosure for fixed
assets is to be segregated into:
(a) Tangible assets;
(b) Intangible assets;
(c) Capital work-in-progress; and
(d) Intangible assets under development

17. 17
Companies Act, 1956
Revised Schedule VI

18. 18
CHAPTER XVII
Registered Valuers
(Section 247)
COMPANIES ACT, 2013

19. 19
Notes to Accounts
Intangible assets
Classification shall be given as:
(a) Goodwill;
(b) Brands /trademarks;
(c) Computer software;
(d) Mastheads and publishing titles;
(e) Mining rights;
(f) Copyrights, and patents and other intellectual property rights,
services
and operating rights;
(g) Recipes, formulae, models, designs and prototypes;
(h) Licences and franchise;
(i) Others (specify nature).

20. Sec of
Companies
Act, 2013
Purpose Details
Sec 62(1)(c) Issue of new shares Price of such shares should be
determined by the valuation report
of a Registered Valuer
Section 192
(2)
Non-cash transactions
with Directors
The value of the assets has to be
calculated by a Registered Valuer
Sec 230 (2) &
(3) , Sec 232
Compromise,
Arrangements,
Amalgamations
Valuation report in respect of
shares, property or assets, tangible
and intangible, movable and
immovable or a swap ratio report
by a Registered Valuer.
Sec 236 Purchase of minority
shareholding
The minority shareholding at a
valuation determined by the
Registered Valuer.
Section 281
(1) (a) and
Section 305
(2) (d)
Winding up of a
company
A valuation of assets of the company
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21. Intangible Assets under Companies Act, 2013
Section under
Companies Act, 2013
Details
Schedule III Separate line item in Balance Sheet under “Non-Current
Assets”
Schedule II Decpreciation/Amortisation of intangible assets –
applicability of Accounting standards,
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22. Who will value
???
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23. Who can be a valuer?
A person having such qualifications and experience
and registered as a valuer in such manner, on
such terms and conditions as may be prescribed.
Amendment:
It shall come into force from the 23'd day of October,
2017. In the Companies Act,2013, in section 247,
in sub-section (1), for the words ,,a person having
such qualifications and experience and registered
as a valuer in such rnanner, on such terms and
conditions as may be prescribed", the words "a
person having such qualifications and experience,
registered as a valuer and being a member of an
organisation recognised in such manner, on such
terms and conditions as may be prescribed" shall
be substituted. 23

24. An individual shall have the following qualifications
and experience to be eligible for registration under
rule 3, namely:-
(a) post-graduate degree or post-graduate
diploma, in the specified discipline, from a
University or Institute established, recognized or
incorporated by law in India and at least three
years of experience in the specified discipline
thereafter; or
(b) a Bachelor's degree or equivalent, in the
specified discipline, from a University or Institute
established, recognized or incorporated by law in
India and at least five years of experience in the
specified discipline thereafter; or
(c) membership of a professional institute
established by an Act of Parliament enacted for
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Who can be a valuer?

25. Securities or Financial Assets Graduate in any
stream:
(1) Member of the Institute of Chartered
Accountants or The Institute of Cost
Accountants of India or the Institute of
Company Secretaries of India;
(2) MBA/PGDBM specialisation in finance or;
(3) Post Graduate Degree in Finance Three
years of experience in the discipline after
completing graduation. Courses as per
syllabus specified under rule 5
Any other asset class along with corresponding
qualifications and experience in accordance
with rule 4 as may be specified by the authority
for a registered valuers organization in its
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Who can be a valuer?

26. Expert
As per Sec.2(38)
“EXPERT” includes:
 An Engineer,
 A Valuer,
 A Chartered Accountant,
 A Company Secretary,
 A Cost Accountant And
 Any Other Person Who Has The Power Or Authority To
Issue A Certificate In Pursuance Of Any Law For The Time
Being In Force
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29. COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017
 Eligibility for registered valuers
 Qualifications and experience
 Valuation Examination
 Application for certificate of registration
 Conditions of Registration
 Conduct of Valuation
 Temporary surrender
 Functions of a Valuer
 Transitional Arrangement
 Eligibility for registered valuers organizations
 Application for recognition
 Conditions of Recognition
 Cancellation or suspension of certificate of registration or recognition
 Complaint against a registered valuer or registered valuers organization
 Procedure to be followed for cancellation or suspension of registration or recognition certificate
 Valuation Standards
 Committee to advise on valuation matters
 Punishment for contravention
 Punishment for false statement
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30. What is the subject matter of valuation?
Who can be a valuer?
Who is having the power to appoint a valuer?
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31. COMPANIES ACT 2013 PROVISIONS
• 247.Valuation by Registered Valuers.
• (1) Where a valuation is required to be made in respect
of any property, stocks, shares, debentures, securities
or goodwill or any other assets (herein referred to as
the assets) or net worth of a company or its liabilities
under the provision of this Act, it shall be valued by [a
person having such qualifications and experience and
registered as a valuer in such manner, on such terms
and conditions as may be prescribed] and appointed by
the audit committee or in its absence by the Board of
Directors of that company.
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32. What are the Instances of Valuation?
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33.  Issue of new shares
 value (worth) of the business.
 sale of a business
 Expansion
 Amalgamate
 preference shares or debentures
 the acquisition
 jointly by the partners in a partnership firm and it is dissolved, it becomes necessary to value for proper
distribution of assets.
 loan advanced on the security of shares
 Purchase and sale of shares of private limited/ limited companies and any un quoted shares under stock
exchanges.
 net asset value by an investment company.
 Dispute resolution cases
 intellectual property rights
 per share value of an Employee Stock Option Plan (ESOP)/ Sweat Equity shares.
 bank financing or alternative investment.
 intrinsic value of a business and assess whether it is different from the fair market value of the business.
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34. Requirement of Valuation under various
Sections by the registered Valuer
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35. 35
Sections Covered under the Companies Act, 2013 Purpose of Valuation
Chapter-IV-Share Capital and Debentures
Section 54 read with Rule 8 For valuation of sweat equity shares
Section 62 (1)(c) For valuation of further issuance of shares
Chapter-XII-Meetings of Board and its Powers
Section 177(4)(vi) For valuation of undertakings or assets of the company.
Section 192(2) For valuing of Assets involved in arrangement of Non-cash transactions
involving directors
Chapter-VX- Compromises, Arrangements and Amalgamations
Section 230(2)(c)(v) For valuation of shares, property and all assets, tangible and intangible,
movable and immovable of the Company under a scheme of Corporate Debt
restructuring.
Section 230(3) Under a scheme of compromise /arrangement, along with the notice of
creditors/shareholders meeting, a copy of valuation report, if any shall be
accompanied.
Section 232(2)(d) Copy of the Valuation Report by the expert with regard to valuation, if any
would be circulated for meeting of creditors/members.
Section 232(3)(h) Where under Merger and Amalgamation of companies, the transferor
company is a listed company and the transferee company is an unlisted
company, for exit opportunity to the shareholder of transferor company,
valuation may be required to be made by the tribunal.
Section 236(2) Valuation for Purchase of Minority
Shareholding
Chapter-XIX- Revival and Rehabilitation of Sick Companies
Section 260(2)(C) Valuation in respect of Shares and Assets to arrive at the Reserve Price for the
sale of for Company Administrator.
((a).Omitted by Insolvency and Bankruptcy Code, 2016 Dated 15th Nov, 2016)
(b) The MCA Notification No. F.O. 3453(E) Dated 15th November, 2016,
enforcing the related sections of Insolvency and Bankruptcy Code, 2016)
Chapter-XX- Winding Up-Part-I- Winding Up by Tribunal
Section 281(1)(a) For submission of report by Company Liquidator shall accompany valuation
report on the assets held by the company.
Chapter-XX- Winding Up-Part-II-Voluntary Winding Up
Section 305(2)(d) Report on Assets for declaration of solvency in case of proposal to wind up
voluntarily.
Section 319(3)(b) Valuing interest of any dissenting member under Power of Company
Liquidator to accept shares etc., as consideration for sale of property of the
company.
((a).Omitted by Insolvency and Bankruptcy Code, 2016 Dated 15th Nov, 2016)
(b) The MCA Notification No. F.O. 3453(E) Dated 15th November, 2016,

36. How does valuation happen under various
other Acts?
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37. 37
Act Particulars Refrerence
Insolvency and Bankruptcy Code, 2016 Regulation 35 (i) The Code defines liquidation
value as
“Liquidation value is the
estimated realizable value of the
assets of the corporate debtor if
the corporate debtor were to be
liquidated on the insolvency
commencement date.”
Regulation 38 (i) It mandates that the resolution plan
shall identify the liquidation value due
to operating creditors and liquidation
value due to dissenting financial
creditors.
Under SEBI(Real Estate Investment Trust)
Regulations, 2014
Regulation 2(1) (zz) “Valuer” means any person who is a
"registered valuer" under section 247 of
the Companies Act, 2013 and who
has/have been appointed by the
manager to undertake both financial
and technical valuation of the REIT
assets.
Under SEBI (Infrastructure Investment
Trusts) Regulations, 2014
Regulation 2(1) (zzf) “valuer” means any person38[(s)] who
is a "registered valuer" under section
247 of the Companies Act, 2013 and
who has/have been appointed by the
investment manager to undertake both
financial and technical valuation of the
InvIT assets.

38. 38
Act Particulars Refrerence
SEBI (Issue Of Capital and Disclosure
Requirements) Regulations, 2009
Chapter-VIA- Conditions and manner of
providing Exit Opportunity to
Dissenting Shareholders under Section
27 of the Companies Act, 2013.
Regulation -69E-Exit Offer Price-
Pricing of equity shares – Infrequently
traded shares.
Chapter-VII- Preferential Issue Regulation -73(3) - securities are issued
on a preferential basis to promoters,
their relatives, associates and related
entities for consideration other than
cash.
Chapter-VII- Preferential Issue Regulation-76A- Pricing of equity
shares – Infrequently traded shares.
SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations,
2011
Chapter-II-Substantial Acquisition of
Shares, Voting Rights or Control.
Regulation 8(16)-Offer Price-In case
infrequently traded shares, the SEBI
may ask valuation of shares.
Chapter-II-Substantial Acquisition of
Shares, Voting Rights or Control.
Regulation 9(5(c)) - Mode of Payment-
Where listed securities are offered as
consideration, the value of such
securities and the ratio of exchange of
shares.

39. 39
Regional Stock Exchange listed
Companies/ Listed companies moved
to Dissemination Board of NSE/ BSE
SEBI Circular dated 10th October 2016,No.
SEBI/HO/MRD/DSA/CIR /P/ 2016/110
Exit opportunity to the shareholders of Exclusively
Listed Companies.
Mergers, Amalgamations, Demerger,
Reduction of Capital etc.,
SEBI Notification No. CIR/CFD/CMD/16/2015, dated 30th
November, 2015
Fairness Opinion is required from the Category-1
Registered Merchant Banker based on the valuation
done by an Independent Chartered Accountant.
RBI/FEMA Regulations Under FEMA Regulations (Foreign Direct Investments), for
Issue /Transfer of Equity shares / Compulsory convertible
instruments between Resident and Non Resident Also for
Investment/Acquisition of Companies outside India (ODI),
valuation is required- Inbound/ outbound Investments
For Investment more than 5 mn USD, then Valuation of
Category-1 Merchant Banker registered with SEBI.
For Investment 5 mn USD or less, then Valuation from
practicing Chartered Accountant in practice with ten
years of experience.
Income Tax Act, 1961 Section -17 (2)(vi) read with Rule 3(8)(i) of Income Tax
Rules, 1962
Perquisite is taxed in the hands of Employees which is
computed as the difference between the Fair Market
Value of the shares on the date of exercise and the
exercise price. The employer is required to withhold
tax at source in respect of such perquisite:
 In case of Unlisted Companies, Valuation to be
done by a SEBI Registered (Category-I)
Merchant Banker.
 For Listed companies, Average of Opening and
Closing Market Price on Exercise date is
prescribed.
Section-56- Income Tax on deemed gifts Section 56 (2)(vii) & Section 56 (2)(vii)(a) –Valuation
done by Valuation from practicing Chartered
Accountant in practice
Section 56 (2)(vii)- Valuation to be done by a SEBI
Registered (Category-I) Merchant Banker.
Section 92C-Transfer Pricing To Meet the regulatory guidelines.

40. What are the Do’s and Do not’s of
Valuer ?
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41. Conditions Precedents and
Subsequents
The valuer appointed under sub-section (1) shall,—
(a) make an impartial, true and fair valuation of any assets which
may be required to be valued;
(b) exercise due diligence while performing the functions as valuer;
(c) make the valuation in accordance with such rules as may be
prescribed; and
(d) not undertake valuation of any assets in which he has a direct or
indirect interest or becomes so interested at any time [during a
period of three years prior to his appointment as valuer or three
years after the valuation of assets was conducted by him.]
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42. Do’s and Do not’s
DO
• Make an impartial, true
and fair valuation
• Exercise due diligence
DO NOT
• Undertake valuation of
any assets in which he
has any interest
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43. How to present Valuation Report?
43

44. Valuation Report
As per,
Companies_(Registered_Valuers_and_Valuation)_Rules_2017.
(3) The valuer shall, in his report, state the following:-
(a) background information of the asset being valued;
(b)purpose of valuation and appointing authority;
(c) identity of the valuer and any other experts involved in the valuation;
(d) disclosure of valuer interest or conflict, if any;
(e)date of appointment, valuation date and date of report;
(f)inspections and/or investigations undertaken;
(g)nature and sources of the information used or relied upon;
(h)procedures adopted in carrying out the valuation and valuation standards followed;
(i) restrictions on use of the report, if any;
(j) major factors that were taken into account during the valuation;
(k) conclusion; and
(l) caveats, limitations and disclaimers to the extent they explain or elucidate the limitations
faced by valuer, which shall not be for the purpose of limiting his responsibility for the
valuation report.
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45. Valuer shall consider the following points for valuation Report
(a) Nature and History of the business
(b) Economic outlook
(c) Book value of the
(d) Earning capacity of the company;
(e) Dividend –paying capacity;
(f) Goodwill or other intangible value;
(g) Sales of the stock and the size of the block of stock to be valued;
(h) Market prices of stock
(i) Contingent liabilities
Points to be considered in valuation report
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46. CASE STUDIES
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47.  Variation in valuation from one intangible asset with other intangible assets
 Basis of valuation depends on time, cost and circumstances.
 Impact of amendments in the regulations for disclosures affecting the financial
position of the company.
 Various kinds of intangible assets are not taken into account in disclosure of
financial statements.
 Gaps in the Indian and International accounting standards and reporting systems.
 Failure to understand the enterprise's core value and the special characteristics of
its intangible assets;
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Valuation - Pitfalls

48. PITFALLS – CASE STUDY
 Failure to understand the enterprise's core value and the special
characteristics of its intangible assets;
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Pitfalls Cases

49. 49
Case Study
With the loans to Kingfisher Airlines (KFA) turning into a non-performing asset
(NPA), the Reserve Bank of India (RBI) has asked banks not to treat “Kingfisher
brand”, an intangible asset, as collateral
RBI’s instruction to banks is the principle of lending to and on the back of
all intangible and knowledge assets. By permitting banks to finance
investments in an intangible asset such as spectrum and seeking bank’s
recourse to it in the event of a default, RBI had moved forward on
intangible asset financing.

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51. Active part in drafting rules
Registered Valuer
Organization
Clarifications
Training Courses
Exams
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54. THANK YOU
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