Business Valuation Flashcards
business and intangible assets
What is an Intangible Asset according to RICS Definition?
A non-monetary asset without physical substance, granting rights and economic benefits to the owner.
Intangible assets include patents, trademarks, and copyrights.
What is Goodwill according to RICS Definition?
Any future economic benefit from a business or asset group that is not separable.
Goodwill often arises when a company acquires another for more than the fair value of its net identifiable assets.
What characteristic distinguishes intangible assets from tangible ones?
They lack physical substance but provide economic value.
What is the key feature of goodwill that makes it different from other intangible assets?
It is not separable from the business or asset group.
Where can professionals find guidance on intangible assets and goodwill?
From standard and technical guides issued by professional bodies (e.g., RICS).
Which RICS publication sets the standard for intangible asset valuation?
RICS Valuation – Global Standards (Red Book Global Standards).
Term: Marketing-related Intangible Assets
Examples: Trademarks, trade names, internet domain names, non-competition agreements.
Description: Assets related to branding and customer recognition.
Term: Customer-related Intangible Assets
Examples: Customer lists, customer contracts, customer relationships.
Description: Assets based on relationships with existing or potential cu
Term: Artistic-related Intangible Assets
Examples: Licensing agreements, lease agreements, franchise agreements, supplier contracts.
Description: Rights or privileges arising from contractual arrangements.
Term: Technology-based Intangible Assets
Examples: Patents, software, trade secrets, proprietary technologies.
Description: Assets providing value through innovation and technical kno
Term: Data-related Intangible Assets
Examples: Proprietary databases, algorithms, usage data.
Description: Valuable non-physical assets derived from the collection an
Q: What distinguishes a contract-based intangible asset from a customer-related one?
A: Contract-based assets arise from formal agreements, while customer-related assets are based on relationships and behavior patterns.
What are the methods of valuing intangible assets and goodwill, commonly used in professional practice?
A:
- Income Approach - Values an asset based on the present value of future economic benefits (e.g., cash flows).
EX: Discounted Cash Flow (DCF), Relief from Royalty method.
Used When: Future income from the asset can be reasonably estimated. - Market Approach - Values an asset based on comparable market transactions.
EX: Using sales of similar businesses or licenses.
Used When: There are active markets or recent transactions involving similar assets. - Cost Approach - Values an asset based on the cost to recreate or replace it, minus depreciation or obsolescence.
EX: Reproduction cost, replacement cost.
Used When: The asset is unique or lacks reliable market data or income streams.
What is the Relief from Royalty Method?
Estimates value by calculating the present value of royalties saved by owning the asset.
Used for trademarks, patents, copyrights.
What is the Multi-Period Excess Earnings Method (MPEEM)?
A form of income approach where the value is based on earnings attributable to the intangible asset after deducting returns on other assets.
Used for customer relationships, goodwill.
Why might the cost approach be unsuitable for goodwill?
Because goodwill reflects future benefits that cannot be recreated or replaced like a physical asset.
Which approach is often used for valuing goodwill during acquisitions?
Income approach—especially DCF or MPEEM—due to its focus on future benefits.
