ABV Goodwill & Intangible Asset Valuation 3

Question 1

In the context of purchase price allocation, the 'cost approach' is most suitable for valuing:

Accepted Answer

Assembled workforce and certain software assets where replacement cost is estimable

Answer

The cost approach — estimating reproduction or replacement cost — is commonly applied to assembled workforce and internally developed software where direct market or income data are limited.

Question 2

Which of the following is the primary economic concept underlying the relief-from-royalty method?

Accepted Answer

The owner benefits by avoiding royalty payments it would otherwise owe if it had to license the intangible

Answer

The relief-from-royalty method values an intangible asset by capitalizing the royalties the owner is relieved from paying because it owns, rather than licenses, the asset.

Question 3

When allocating purchase price, which approach is required for measuring the fair value of contingent consideration under ASC 805?

Accepted Answer

Expected cash flow scenario weighting or option pricing techniques consistent with fair value measurement

Answer

ASC 805 requires contingent consideration to be measured at fair value at the acquisition date using probability-weighted scenarios or option-pricing techniques that reflect the likelihood and timing of outcomes.

Question 4

Which statement best describes the 'excess earnings' component in a two-period excess earnings model for customer relationships?

Accepted Answer

After-tax cash flows attributable to the subject asset after deducting contributory asset charges for all supporting assets

Answer

Excess earnings are the after-tax cash flows remaining after subtracting contributory asset charges (returns on all other supporting assets), representing the economic return attributable to the subject intangible.

Question 5

For goodwill impairment testing, ASC 350 requires identifying 'reporting units.' A reporting unit is best described as:

Accepted Answer

An operating segment or one level below an operating segment (a component) with discrete financial information that management regularly reviews

Answer

Under ASC 350, a reporting unit is an operating segment or a component of an operating segment that constitutes a business for which discrete financial information is available and reviewed by segment management.

ABV - Accredited in Business Valuation Practice Test

ABV - Accredited in Business Valuation Practice Test

ABV Goodwill & Intangible Asset Valuation 3