International Valuation Standard 210 (IVS 210 -2020) has prescribed methodologies for valuation of intangible assets. Summaries steps are as follows:

• Meaning:

Intangible Assets does not have physical substance but grants rights and/or economic benefits to its owner. Specific intangible assets are defined and described by characteristics such as their ownership, function, market position and image. There are many types of intangible assets:

1. Marketing-related: Marketing-related intangible assets are used primarily in the marketing or promotion of products or services. Examples include trademarks, trade names, unique trade design and internet domain names.
2. Customer-related: Customer-related intangible assets include customer lists, backlog, customer contracts, and contractual and non-contractual customer relationships. 
3. Artistic-related: Artistic-related intangible assets arise from the right to benefits from artistic works such as plays, books, films and music, and from non-contractual copyright protection.
4. Contract-related: Contract-related intangible assets represent the value of rights that arise from contractual agreements. Examples include licensing and royalty agreements, service or supply contracts, lease agreements, permits, broadcast rights, servicing contracts, employment contracts and non-competition agreements and natural resource rights.
5. Technology-based: Technology-related intangible assets arise from contractual or non-contractual rights to use patented technology, unpatented technology, databases, formulae, designs, software, processes or recipes.

• Identification of Intangible Assets, Purpose Valuation.

valuers must understand specifically what needs to be valued and the purpose of the valuation.

• Goodwill

Generally, goodwill is any future economic benefit arising from a business, an interest in a business or from the use of a group of assets which has not been separately recognised in another asset. The value of goodwill is typically measured as the residual amount remaining after the values of all identifiable tangible, intangible and monetary assets, adjusted for actual or potential liabilities, have been deducted from the value of a business. It is often represented as the excess of the price paid in a real or hypothetical acquisition of a company over the value of the company’s other identified assets and liabilities. For some purposes, goodwill may need to be further divided into transferable goodwill (that which can be transferred to third parties) and non-transferable or “personal” goodwill. While the aspects of goodwill can vary depending on the purpose of the valuation, goodwill frequently includes elements such as: 

(a) company-specific synergies arising from a combination of two or more businesses (eg, reductions in operating costs, economies of scale or product mix dynamics), 

(b) opportunities to expand the business into new and different markets, 

(c) the benefit of an assembled workforce (but generally not any intellectual property developed by members of that workforce), 

(d) the benefit to be derived from future assets, such as new customers and future technologies, and 

(e) assemblage and going concern value.

• Bases of Value

The valuer must establish the bases of valuation e.g. Fair Value, Fair Market Value, Liquidation Value etc.

•  Valuation Approaches and Methods

Market Approach:

Under the market approach, the value of an intangible asset is determined by reference to market activity (for example, transactions involving identical or similar assets).

Income Approach

Under the income approach, the value of an intangible asset is determined by reference to the present value of income, cash flows or cost savings attributable to the intangible asset over its economic life.

The income approach is the most common method applied to the valuation of intangible assets and is frequently used to value intangible assets including the following: 

(a) technology,

 (b) customer-related intangibles (eg, backlog, contracts, relationships), 

(c) tradenames/trademarks/brands, 

(d) operating licenses (eg, franchise agreements, gaming licenses, broadcast spectrum), and 

(e) non-competition agreements.

Income Approach Methods

• excess earnings method 

The excess earnings method estimates the value of an intangible asset as the present value of the cash flows attributable to the subject intangible asset after excluding the proportion of the cash flows that are attributable to other assets required to generate the cash flows (“contributory assets”).

• relief-from-royalty method 

Under the relief-from-royalty method, the value of an intangible asset is determined by reference to the value of the hypothetical royalty payments that would be saved through owning the asset, as compared with licensing the intangible asset from a third party.

• premium profit method or with-and-without method 

The with-and-without method indicates the value of an intangible asset by comparing two scenarios: one in which the business uses the subject intangible asset and one in which the business does not use the subject intangible asset (but all other factors are kept constant).

• greenfield method 

Under the greenfield method, the value of the subject intangible is determined using cash flow projections that assume the only asset of the business at the valuation date is the subject intangible. All other tangible and intangible assets must be bought, built or rented.

• distributor method

The distributor method, sometimes referred to as the disaggregated method, is a variation of the multi-period excess earnings method sometimes used to value customer-related intangible assets. The underlying theory of the distributor method is that businesses that are comprised of various functions are expected to generate profits associated with each function. As distributors generally only perform functions related to distribution of products to customers rather than development of intellectual property or manufacturing, information on profit margins earned by distributors is used to estimate the excess earnings attributable to customer-related intangible assets.

Cost Approach

Under the cost approach, the value of an intangible asset is determined based on the replacement cost of a similar asset or an asset providing similar service potential or utility.

• Tax Amortisation Benefit (TAB)

In many tax jurisdictions, intangible assets can be amortised for tax purposes, reducing a taxpayer’s tax burden and effectively increasing cash flows. Depending on the purpose of a valuation services and the valuation method used, it may be appropriate to include the value of TAB in the value of the intangible.