Question

Some of the more common intangible assets are copyrights and trademarks, Why is it difficult to value these in reporting on the balance sheet? What events for companies, such as McDonalds, change the value of their intangible assets?

Answer 1

Difficulties in valuation and reporting of intangible assets :-

Intangible assets can be hard to price. To complicate matters, for intangible assets that are not generate income, the technology associated with the asset maybe too new to properly evaluate how much money it can make for its owner or what competitive advantages it may offer.

How to set a value. In determining the value an experienced business valuation professional can use factors such as projected revenue from use of the asset and it's importance in a specific product or process. All dono standard formula exist for intangible asset valuations, the courts, valuation experts and IRS do concentrate on factors such as :-

1. The significance of the property to the company's product or process.

2. The sales revenues, incomes and costs savings the company can derive from using the property

3. The properties economic life

4. The competitive alternatives to its use etc

With respect to patents, the IRS recognises three main valuation factors

(a) the income that can be attributed to it or it's application

(b) it's safe interest rate at the valuation date and

(c) what the IRS considered to be its most reasonable, speculative capitalisation rate, which must be calculated in an explainable and well reasoned way

Questions 2 :-

Situations in which the changes in the value of intangible assets occurs :-

1. Reduction in the expected life of an intangible asset.

2. Increase in the expected cash flows from the particular intangible asset.

3. Increase in the brand value of the organisation.

4. In case of any merger or acquisition of an organisation by another organisation or liquidation of organisation will leads to changes in the value of intangible assets.

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