Intangible Asset Valuation Flashcards
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Read the first 7 Intangible Asset Valuation flashcards as text
Which valuation approach is most appropriate for valuing a patent on a new pharmaceutical compound?
Answer: Income approach using discounted expected future royalties or profits
The income approach is most appropriate for pharmaceutical patents because it captures the expected future economic benefits — royalties or product profits — discounted at a risk-adjusted rate.
The economic useful life of an intangible asset is best defined as:
Answer: The period over which the asset is expected to contribute to future cash flows
Economic useful life is the period during which an asset is expected to contribute to future cash flows, which may differ from its legal or contractual life.
Customer attrition rates are most directly used in valuing which intangible asset?
Answer: Customer relationships
Customer attrition rates determine how quickly an existing customer base erodes over time, making them central to modeling the revenue decay used to value customer relationships.
In a purchase price allocation, which accounting standard requires acquirers to recognize intangible assets separately from goodwill if they meet the contractual-legal or separability criteria?
Answer: ASC 805
ASC 805 (Business Combinations) requires acquirers to identify and measure all identifiable intangible assets separately from goodwill at their fair values on the acquisition date.
The 'greenfield method' in intangible asset valuation is most commonly used for:
Answer: Concession arrangements or licenses to operate a business
The greenfield method values an intangible, typically a license or concession, by modeling the cash flows of a hypothetical business built entirely from scratch that must first obtain the subject intangible.
When valuing trade names using the relief-from-royalty method, the royalty rate is typically applied to:
Answer: Revenues
In the relief-from-royalty method, royalty rates for trade names are applied to revenues because licensing agreements for brand names are conventionally structured as a percentage of sales.
Non-compete agreements are most commonly valued using:
Answer: The lost profits or with-and-without method
Non-compete agreements are valued by estimating the income the company would lose if the individual were free to compete — a direct application of the with-and-without or lost profits approach.