{"id":235,"date":"2021-02-26T11:22:30","date_gmt":"2021-02-26T11:22:30","guid":{"rendered":"https:\/\/pkchopra.com\/blog\/?p=235"},"modified":"2024-03-12T10:16:07","modified_gmt":"2024-03-12T10:16:07","slug":"valuation-on-intangible-assets","status":"publish","type":"post","link":"https:\/\/pkchopra.com\/blog\/index.php\/valuation-on-intangible-assets\/","title":{"rendered":"Valuation on Intangible Assets"},"content":{"rendered":"

Intangible asset means<\/u><\/strong>\u00a0an asset that is not in physical nature but have monetary value. Eg \u2013 Patents, Copyrights, Brand name, Tradenames, Goodwill and Software.<\/p>\n

As per\u00a0Para21 of INDAS 38 Intangible Assets<\/u><\/strong>, Notified by MCA:<\/p>\n

An intangible asset should be recognized only when following conditions are satisfied i.e.<\/p>\n

a. future economic benefits will be earned by the entity due to holding such intangible asset<\/p>\n

b. cost of intangible can be measured through reliable resources.<\/p>\n

Otherwise, an expenditure incurred in respect to intangible asset should be recognized in the Profit & Loss account in the financial year in which expense is incurred. However, if both the above conditions are satisfied then\u00a0it should be recorded as follow:<\/strong><\/p>\n

a. if asset is acquired separately, then\u00a0acquisition cost<\/strong>.<\/p>\n

b. If asset is acquired in business combination or through a government grant,\u00a0then it should be fair value.<\/strong><\/p>\n

c. If asset is developed internally,\u00a0then the expenditure incurred in development phase shall be recognition value.<\/strong><\/p>\n

Effects of Revaluation<\/u><\/strong><\/p>\n

\"\"<\/p>\n

INDAS 38<\/u><\/strong>\u00a0provides two types of useful lives for the purpose of Amortization & Impairment and De-recognition.<\/p>\n

Definite life \u2013<\/strong>\u00a0limited period of benefit from the asset to the entity. Under this, asset is amortized over the life of the asset and tested for impairment when there is indication.<\/p>\n

Indefinite Life<\/strong>\u00a0\u2013 No foreseeable period over which asset is expected to generate net cash flows for the entity. It needs to be remembered that here indefinite does not mean infinite. Under this, asset is tested for impairment annually and whenever there is indication, asset may be impaired.<\/p>\n

Any gain or loss on derecognition should be transferred to the profit & loss account.<\/p>\n

Valuation of Intangible assets as per ICAI valuation standards 302 (ICAI VS 302)<\/u><\/strong><\/p>\n

\"\"<\/p>\n

Market Approach<\/u><\/strong>\u00a0\u2013 This approach is considered where active market is available for intangible asset and there is sufficient information available about its price in an arm\u2019s length transaction.<\/p>\n

Market approach uses prices and other relevant information available by open market transactions involving identical or comparable assets or labilities and group of assets and liabilities, such as business. Market approach is used to value software generally, as comparable market transactions are readily available in the active market.<\/p>\n

Market approach has further two methods<\/p>\n

 <\/p>\n

\"\"<\/p>\n

Income approach<\/strong>\u00a0is the valuation approach that converts expected maintainable future amounts or cash flow into single current amount. Valuation of Intangible asset under income approach is aggregate of present value of expected cash flows or future cost saving by the owner through owning the asset or through license. Expected cash flows or cost saving should be adjusted with the respective expenses and then discounted to compute the present value.<\/p>\n

Some of the common following valuation methods under Income approach<\/p>\n

\"\"<\/p>\n

Cost Approach\u00a0<\/u><\/strong>is a valuation approach that reflects the amount that would be required currently to replace the service capacity of an asset.<\/p>\n

Valuation of intangible asset using the cost approach is based on the principal rule of substitution i.e., the amount that will be required to create a new similar intangible asset as adjusted for any depreciation becomes the value of intangible asset to be valued.<\/p>\n

Cost method is commonly used to value acquired or internally generated intangible assets like software, technology, assembled workforce, etc. Also, cost approach is generally adopted when market and income approach cannot be applied.<\/p>\n

Cost method has further following two approaches<\/p>\n

\"\"<\/p>\n

There is always a question on which method should be preferred while valuing intangibles given that many methods can be used for valuing intangible assets. The following framework may be useful.<\/p>\n

\"\"<\/p>\n","protected":false},"excerpt":{"rendered":"

Intangible asset means\u00a0an asset that is not in physical nature but have monetary value. Eg \u2013 Patents, Copyrights, Brand name, Tradenames, Goodwill and Software. As per\u00a0Para21 of INDAS 38 Intangible Assets, Notified by MCA: An intangible asset should be recognized only when following conditions are satisfied i.e. a. future economic benefits will be earned by …<\/p>\n","protected":false},"author":1,"featured_media":237,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":""},"categories":[12],"tags":[165,161,164,163,162,160],"_links":{"self":[{"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/235"}],"collection":[{"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=235"}],"version-history":[{"count":2,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/235\/revisions"}],"predecessor-version":[{"id":245,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/235\/revisions\/245"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/media\/237"}],"wp:attachment":[{"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=235"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=235"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=235"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}