ASA Intangible Asset Valuation 3

Question 1

In a purchase price allocation, the Weighted Average Return on Assets (WARA) should reconcile to:

Accepted Answer

The internal rate of return (IRR) implied by the acquisition price

Answer

The weighted average cost of capital (WACC) of the acquiring company

Answer

The risk-free rate of return on government securities

Answer

The return on equity of the acquiring company

Question 2

In-process R&D (IPR&D) acquired in a business combination is required to be:

Accepted Answer

Recognized as an indefinite-lived intangible asset at fair value under ASC 805

Answer

Expensed immediately under ASC 730

Answer

Capitalized and amortized over five years under ASC 350

Answer

Included in goodwill and tested annually for impairment

Question 3

Which of the following factors would most likely DECREASE the value of a customer relationship intangible?

Accepted Answer

High customer attrition rates

Answer

High customer switching costs in the industry

Answer

Long-term contractual agreements with key customers

Answer

A diversified customer base with consistent repeat purchases

Question 4

Under ASC 350, goodwill must be tested for impairment:

Accepted Answer

At least annually and whenever a triggering event indicates potential impairment

Answer

Only when a specific triggering event occurs

Answer

On a quarterly basis for all reporting units

Answer

Only upon disposal or sale of the reporting unit

Question 5

The Multi-Period Excess Earnings Method (MPEEM) is most appropriate for valuing:

Accepted Answer

The primary intangible asset driving the majority of a business's value

Answer

A trade name with stable royalty-based licensing revenue

Answer

A non-compete agreement with a fixed contractual term

Answer

A patent portfolio with uniform licensing royalty rates

Question 6

A covenant not to compete derives its primary value from:

Accepted Answer

The ability to prevent lost profits during the covenant period

Answer

The technical knowledge embedded in the restricted individual

Answer

The contractual royalties owed to the covenantor over the agreement term

Answer

The brand equity associated with the individual's personal reputation

Question 7

The 'distributor method' in intangible asset valuation isolates the return attributable to an intangible by:

Accepted Answer

Using margins of a hypothetical distributor to strip out returns from distribution, leaving the intangible's return

Answer

Estimating royalties paid through a third-party distribution network

Answer

Calculating the cost to establish an equivalent new distribution channel

Answer

Applying market multiples derived from comparable distribution companies