Certified Valuation Analyst CVA Valuation of Intangible Assets 2 — Questions and Answers
Question 1: Under ASC 350, goodwill is subject to:
- Annual impairment testing rather than systematic amortization (Correct answer)
- Straight-line amortization over 40 years
- Component depreciation matching the underlying asset lives
- Amortization only when triggering events occur
Correct answer: Annual impairment testing rather than systematic amortization
Under GAAP, goodwill is not amortized but must be tested for impairment at least annually at the reporting unit level.
Question 2: The With-and-Without Method for valuing intangibles estimates value by:
- Comparing business value with the intangible in place versus without it (Correct answer)
- Calculating the sum of royalty savings over the asset's life
- Capitalizing the after-tax earnings attributed to the intangible
- Applying a market multiple to annual licensing revenue
Correct answer: Comparing business value with the intangible in place versus without it
The With-and-Without Method values the intangible as the difference between two DCF scenarios — one assuming the intangible exists and one assuming it must be replaced or foregone.
Question 3: When valuing assembled workforce under a purchase price allocation, analysts typically use:
- The Cost Approach, estimating replacement hiring, training, and ramp-up costs (Correct answer)
- The Relief from Royalty method using labor market royalty rates
- MPEEM applied to individual employee salary streams
- The comparable transaction method using staffing firm multiples
Correct answer: The Cost Approach, estimating replacement hiring, training, and ramp-up costs
Assembled workforce is a contributory asset valued using the Cost Approach because it reflects what it would cost to recreate the trained workforce from scratch.
Question 4: Which of the following best describes 'enterprise goodwill' versus 'personal goodwill' in a business valuation?
- Enterprise goodwill is transferable with the business; personal goodwill attaches to a specific individual and is not (Correct answer)
- Enterprise goodwill relates to tangible assets; personal goodwill relates to intangible assets
- Enterprise goodwill applies only to C-corporations; personal goodwill applies to S-corporations
- Enterprise goodwill is valued at cost; personal goodwill is valued at fair market value
Correct answer: Enterprise goodwill is transferable with the business; personal goodwill attaches to a specific individual and is not
Enterprise goodwill transfers to a buyer along with the business, while personal goodwill is tied to a key person and does not survive a change in ownership.
Question 5: In the Relief from Royalty method, the royalty rate applied to revenues is typically derived from:
- Comparable licensing agreements or royalty rate databases (Correct answer)
- The subject company's gross margin percentage
- Industry average EBITDA margins
- The acquirer's internal hurdle rate
Correct answer: Comparable licensing agreements or royalty rate databases
Royalty rates are benchmarked against arms-length licensing transactions for comparable intangibles, sourced from databases like RoyaltyStat or ktMINE.
Question 6: Technology intangibles (developed technology) are most commonly valued using:
- The Relief from Royalty method or MPEEM, depending on whether it is the primary value driver (Correct answer)
- Only the replacement cost method
- The guideline public company method applied to revenue multiples
- Straight-line amortization of R&D expenditures
Correct answer: The Relief from Royalty method or MPEEM, depending on whether it is the primary value driver
Developed technology is valued using Relief from Royalty when comparable licensing rates exist, or MPEEM when it is the primary intangible generating excess earnings.
Certified Valuation Analyst CVA Valuation of Intangible Assets 2
Under ASC 350, goodwill is subject to: