ASA Intangible Asset Valuation 1 — Questions and Answers
Question 1: Which of the following best defines an intangible asset in the context of ASA appraisal practice?
- A non-physical asset that provides future economic benefits (Correct answer)
- Any asset that cannot be sold independently of the business
- A non-monetary asset that is fully depreciated on the balance sheet
- An asset that generates no measurable cash flow
Correct answer: A non-physical asset that provides future economic benefits
Intangible assets are defined as non-physical assets that provide future economic benefits to their owner, which is the foundation of their appraisal.
Question 2: The relief-from-royalty method is most commonly used to value which type of intangible asset?
- Customer relationships
- Trade names and trademarks (Correct answer)
- Assembled workforce
- Deferred revenue
Correct answer: Trade names and trademarks
The relief-from-royalty method values an intangible by estimating the royalties saved by owning the asset, and is most frequently applied to trade names and trademarks because they are commonly licensed.
Question 3: In the Multi-Period Excess Earnings Method (MPEEM), 'contributory asset charges' represent:
- Total depreciation of tangible assets used in the business
- Required returns on all other assets that contribute to the subject intangible's earnings (Correct answer)
- The fair market value of all supporting intangible assets
- Transaction costs associated with acquiring the intangible asset
Correct answer: Required returns on all other assets that contribute to the subject intangible's earnings
Contributory asset charges represent the required returns on all other assets (tangible and intangible) that support the earnings attributable to the primary subject intangible.
Question 4: Which of the following is generally considered a 'separable' intangible asset under ASC 805?
- Goodwill
- Going concern value
- Customer lists (Correct answer)
- Workforce in place
Correct answer: Customer lists
Customer lists meet the separability criterion under ASC 805 because they can be sold, transferred, or licensed independently from the rest of the business.
Question 5: Goodwill in a business combination is best described as:
- The premium paid for brand recognition only
- The residual after allocating fair value to all identifiable assets and liabilities (Correct answer)
- The net present value of expected future profits
- The book value of intangible assets on the target's balance sheet
Correct answer: The residual after allocating fair value to all identifiable assets and liabilities
Goodwill is calculated as the excess of the purchase price over the aggregate fair values of all identifiable net assets acquired in the business combination.
Question 6: The 'with and without' method values an intangible asset by:
- Comparing the subject company's value to competitors with and without the asset
- Calculating the difference in company value assuming the intangible exists versus assuming it does not (Correct answer)
- Applying a royalty rate to revenues with and without use of the asset
- Estimating replacement cost with and without obsolescence adjustments
Correct answer: Calculating the difference in company value assuming the intangible exists versus assuming it does not
The with and without method estimates intangible value as the present value difference between enterprise value when the intangible is present versus when it is absent.
Question 7: Which of the following is NOT typically recognized as a separately identifiable intangible asset in a purchase price allocation?
- Non-compete agreements
- Assembled workforce (Correct answer)
- Developed technology
- Customer relationships
Correct answer: Assembled workforce
Under ASC 805, assembled workforce does not meet the contractual-legal or separability criterion and is therefore subsumed into goodwill rather than recognized as a separate intangible.
ASA Intangible Asset Valuation 1
Which of the following best defines an intangible asset in the context of ASA appraisal practice?