Question

Please respond to the following problems from Chapter 6 found in section 6.6:

Problem 6.1: In section 6.2.3, we made the comment “Perception is reality”. What is the impact of this statement in the valuation of a tangible versus intangible asset?

Problem 6.5: What is goodwill and how is it different from other intangible assets?

Check the Rubric

Answer 1

(6.1) The meaning of the statement that is "perception is reality" means that what others think about you and your behaviour is real and your intentions does not matter at all.We are judged by our actions and words that others can see and hear.It means that your behaviour and their results matter infinitely more than your intentions.

Considering the above statement with its meaning it is clear that it affects in valuation of the assest of the entity and basically the intangible assets.

Tangible assets which can has physical existence like plant, machinery etc.valuation is done on the basis of the market value,condition,availabilty of the asset .The several methods available in the market for valuation of tangible assest like: the comparison,profits,residual,contractors and that of investments.Therefore the valuation of tangible assets is not affected by the perception but it can sometimes may be be the reason when others do not consider the same valuation as done by us.

Intangible assets are those which do not have physical existence like brand name,trademark etc.the valuation of these assets is fully affected by the perception that how others take up the product of service as brand image is created by the users so how they think of the brand will affected the valuation of the assets therefore perception of people is essential in valuation of intangible assets.

(6.2)Goodwill is basically the reputation of the organisation which is earned by them over the periof of time.It is one of the most important intangible asset in the organisation.Goodwill cannot be sold and is perceived to have indefinite life.Goodwill is different from other intangible assets in following terms:

• Goodwill is for indefinite life whereas other intangible assets have definite useful life.
• Goodwill do not amortize and keep on increasing but get impaired whereas other intangible assets amortize over period of time and will expire.
• Goodwill is shown as seperate line item in balance sheet whereas other intangible assets are grouoed together in one line item under the head other intangible assets.
• Goodwill is unidentifiable asset that is it can not be seperated from the company whereas other intangibles are identifiable assets and can be seperated and sold by the company
• Goodwill is selfmade whereas other intangibles may be selfmade or purchased from outside.