UNIT III

Valuation of Intangibles

3.1 Valuation of Goodwill (Problem)

Meaning of assets:

A valuable resource owned, owned or managed by an individual or organization that has economic value, is capable of generating future profits (income), and can be represented in monetary or monetary value.

Assets can be tangible or intangible in nature.

Meaning of tangible assets:

An asset that can be touched, felt, and seen because it has a clear physical form.

Meaning of the term intangible:

Anything that is non-physical and can generate future economic benefits for a company is an intangible asset.

An asset that is not financially identifiable and cannot be seen, felt, or physically measured.

Definition of Accounting Standard for Intangible Assets (AS) 26:

Intangible assets are non-physical, identifiable, non-monetary assets held for the purpose of producing or supplying goods or services, renting to others, or for management purposes.

Characteristics of intangible assets:

1) Non-physical – There is no physical form. Therefore, it cannot be seen, felt or touched. It cannot be measured physically.

2) Identifiable – May be in the form of legal or contractual rights. It is separable from other assets and is sellable, transferable or exchangeable. Therefore, you can get a license and rent it. It can also take the form of a completely intangible right.

3) Manageable – An entity or individual manages an asset. The power to enjoy future financial benefits is given to the individual or group that owns it.

4) Future Economic Benefits-The ability to generate future economic benefits in the form of cost savings, profits, future markets and more.

5) Long-term useful life: These assets have the ability to generate long-term economic benefits.

6) Self-created or acquired separately from those acquired through business combination.

Meaning of Goodwill

Goodwill is an intangible but not fictitious assets which means it has some realizable value. From the accountants’ point of view goodwill, in the sense of attracting custom, has little significance unless it has a saleable value. To the accountant, therefore, goodwill may be said to be that element arising from the reputation, connection, or other advantages possessed by a business which enables it to earn greater profits than the return normally to be expected on the capital represented by the net tangible assets employed in the business. In considering the return normally to be expected, regard must be had to the nature of the business, the risks involved, fair management remuneration and any other relevant circumstances.

The goodwill possessed by a firm may be due, inter alia, to the following:

The need for evaluating goodwill may arise in the following cases:

(a)  Nature of the industry, its history and the risks to which it is subject to.

(b) Prospects of the industry in the future.

(c)  The company’s history — its past performance and its record of past profits and dividends.

(d) The basis of valuation of asset of the company and their value.

(e) The ratio of liabilities to capital.

(f)   The nature of management and the chance for its continuation.

(g) Capital structure or gearing.

(h) Size, location and reputation of the company’s products.

(i)  The incidence of taxation.

(j)  The number of shareholders.

(k) Yield on shares of companies engaged in the same industry, which are listed in the Stock Exchanges.

(l)  Composition of purchasers of the products of the company.

(m) Size of block of shares offered for sale since large blocks very few buyers would be available and that has a depressing effect on the valuation. Question of control, however, may become important, when large blocks of shares are involved.

(n) The major factor of valuation of goodwill is the profits of the company. One who pays for goodwill looks to the future profit. The profits that are expected to be earned in future are extremely important for valuation of goodwill. The following are the important factors that have a bearing on future profits:

(i)     Personal skill in management

(ii)     Nature of business

(iii)     Favorable location

(iv)     Access to supplies

(v)     Patents and trademarks protection

(vi)     Exceptionally favorable contracts.

(vii)     Capital requirements and arrangement of capital.

(o) Estimation of the profits expected to be earned by the firm and the amount of capital employed to earn such profits, are to be computed carefully.

(p) Market reputation which the company and its management enjoys.

(q) Returns expected by investors in the industry to which the firm or company belongs.

Concept of Goodwill

When one company buys another company, the purchasing company may pay more for the acquired company than the fair market value of its net identifiable assets (tangible assets plus identifiable intangibles, net of any liabilities assumed by the purchaser). The amount by which the purchase price exceeds the fair value of the net identifiable assets is recorded as an asset of the acquiring company. Although sometimes reported on the balance sheet with a descriptive title such as “excess of acquisition cost over net assets acquired”, the amount is customarily called goodwill.

Goodwill arises only part of a purchase transaction. In most cases, this is a transaction in which one company acquires all the assets of another company for some consideration other than an exchange of common stock. The buying company is willing to pay more than the fair value of the identifiable assets because the acquired company has a strong management team, a favorable reputation in the marketplace, superior production methods, or other unidentifiable intangibles.

The acquisition cost of the identifiable assets acquired is their fair market value at the time of acquisition. Usually, these values are determined by appraisal, but in some cases, the net book value of these assets is accepted as being their fair value. If there is evidence that the fair market value differs from net book value, either higher or lower, the market value governs.

Q1) Company X acquires all the assets of company Y, giving Company Y Rs 15 lakh cash. Company Y has cash Rs 50,000 accounts receivable that are believed to have a realizable value of Rs 60,000, and other identifiable assets that are estimated to have a current market value of Rs 11 lakhs.

A1)

This extra amount of Rs 2,90,000 paid over and above, Net worth Rs 12,10,000 is goodwill, which is a capital loss for purchasing company and to be shown on assets side of Balance Sheet. This entire amount will be written off against revenue profit, i.e., Profit and Loss Account over period of time.

Methods of Valuing Goodwill

There are basically two Methods of valuing goodwill: (a) Simple/Average profit method and (b) Super profit method.

(a) Simple/Average Profit Method: Goodwill is generally valued on the basis of a certain number of years’ purchase of the average business profits of the past few years. While calculating average profits for the purposes of valuation of goodwill, certain adjustments are made. Some of the adjustments are as follows:

Trading Profit/Business Profit/Recurring Profit/Normal Profit (of Past Year)

Calculation of Average profit

Simple Average Profit =   Total profit of (past years)

                                               Total number of past years

Weighted Average profit:

Weighted Average Profit  =                 

Notes: If past profits are in increasing trend, then calculate Average Profit by weighted average method or otherwise simple average  method.

Total product

Total of weight

Calculation of F.M.P. (Future Maintainable Profit):

(i)    All actual expenses and losses not likely to occur in the future are added back to profits.

(ii)    All actual expenses and losses not likely to occur in the future are added back to profits.

(iii)    All profits likely to come in the future are added.

After adjusting profit in the light of future possibilities, average profit is estimated and then the value of goodwill is estimated. If goodwill is to be valued at 3 years’ purchase of the average profits which come to Rs 50,000, the goodwill will be Rs 1,50,000, i.e., 3 × Rs 50,000.

This method is a simple one and has nothing to recommend since goodwill is attached to profits over and above what one can earn by starting a new business and not to total profits.

It ignores the amount of capital employed for earning the profit. However, it is usual to adopt this method for valuing the goodwill of the practice of a professional person such as a chartered accountant or a doctor.

Calculation of Capital Employed and Average Capital Employed

Average Capital Employed = Opening Capital Employed + Closing Capital Employed

                                                 2

= Closing Capital Employed – ½ of Current Years’ Profit+ Current Years’ Dividend

(b) Super Profit Method: The future maintainable profits of the firm are compared with the normal profits for the firm. Normal earnings of a business can be judged only in the light of normal rate of earning and the capital employed in the business. Hence, this method of valuing goodwill would require the following information:

(i)    A normal rate of return for representative firms in the industry.

(ii)    The fair value of capital employed.

The normal rate of earning is that rate of return which investors in general expect on their investments in the particular type of industry. Normal rate of return depends upon the risk attached to the investment, bank rate, market, need, inflation and the period of investment.

Normal Rate of Returns (NRR)

It is the rate at which profit is earned by normal business under normal circumstances or from similar course of business. Normal Rate of Returns means rate of profit on capital employed which is normally earned by others in a similar type of business. It will always be given in the problem in form of percentage.

Or NRR = Rate of Risk + Rate of Returns or Dividend per Share x 100

               Market price per Share

As the capital employed may be expressed as aggregate of share capital and reserves less the amount of non-trading assets such as investments. The capital employed may also be ascertained by adding up the present values of trading assets and deducting all liabilities. Super profit is the simple difference between future maintainable operating profit and normal profit.

Q2) Rishi Computers Ltd. gives you the following summarized balance sheet as at 31st December, 2009:

The company earned a profit of Rs 18,00,000 before tax in 2009. The capital work-in-progress represents additional plant equal to the capacity of the present plant; if immediately operational, there being no difficulty in sales. With effect from 1st January, 2010, two additional Works Managers are being appointed at Rs 1,00,000 p.a. Ascertain the future maintainable profit and the capital employed, assuming the present replacement cost of fixed assets is Rs 1,00,00,000 and the annual rate of depreciation is 10% on original cost.

A2)

Normal profit: Suppose investors are satisfied with a 180% return, in the above example, the normal profit will be Rs 11,34,000, i.e., 18% of Rs 63 lakhs.

The followings are some items which generally require adjustment in arriving at the average of the past earnings:

Another important factor comes up for consideration in averaging past profits and that is the trend of profits earned. It is imperative that estimation of maintainable profits be based on the only available record i.e., the record of past earnings, but indiscrete use of past results may lead to an entirely fallacious and unrealistic result.

Where the profits of a company are widely fluctuating from year to year, an average fails to aid future projection. In such cases, a study of the whole history of the company and of earnings of a fairly long period may be necessary. If the profits of a company do not show a regular trend upward or downward, an average of the cycle can usefully be employed for projection of future earnings.

In some companies, profits may record a distinct rising or falling trend from year; in these circumstances, a simple average fails to consider a significant factor, namely, trend in earnings.

The shares of a company which record a clear upward trend of past profits would certainly be more valuable than those of a company whose trend of past earnings indicates a downtrend. In such cases, a weighted average giving more weight to the recent years than to the past, is appropriate. A simple way of weighing is to multiply the profits by the respective number of the years arranged chronologically so that the largest weight is associated with the most recent past year and the least for the remotest.

Future Profitability Projections: Project is more a matter of intelligent guesswork since it is essentially an estimation of what will happen in the risky and uncertain future. The average profit earned by a company in the past could be normally taken as the average profit that would be maintainable by it in the future, if the future is considered basically as a continuation of the past. If future performance is viewed as departing significantly from the past, then appropriate adjustments will be called for before accepting the past average profit as the future maintainable profit of the company.

There are three methods of calculating goodwill based on super profit. The methods and formulae are as follows:

Purchase of Super Profit Method

Goodwill as per this method is: Super profit multiplied by a certain number of years. Under this method, an important point to note is that the number of years of purchase as goodwill will differ from industry to industry and from firm to firm. Theoretically, the number of years is to be determined with reference to the probability of a new business catching up with an old business. Suppose it is estimated that in two years’ time, a business, if started now will be earning about the same profits as an old business is earning now, goodwill will be equivalent to two times the super profits. In the example given above, goodwill will be Rs 12.12 1akhs, i.e., Rs 6.06 1akhs × 2 years.

Annuity Method of Super Profit

Goodwill, in this case, is the discounted value of the total amount calculated as per purchase method. The idea behind super profits methods is that the amount paid for goodwill will be recouped during the coming few years. But in this case, there is a heavy loss of interest. Hence, properly speaking what should be paid now is only the present value of super profits paid annually at the proper rate of interest. Tables show that the present value 18% of Re. 1 received annually two years is 1.566. In the above example, the value of goodwill under this method will be 1.3 × Rs 6.06 1akhs or Rs 9.49 lakhs.

Capitalization of Super Profit Method

This method tries to find out the amount of capital needed for earning the super profit.

The formula is Super Profit x 100

                                         NRR

In above example, Goodwill will be = 6.06 lakhs x 100

                                                                               18

      = Rs. 33.67 lakhs

 Given in the Problems

Required to Prepare

Valuation of goodwill by different methods.

Steps, Method and Formula for Calculation of Goodwill

Goodwill by purchase of average profit method: Steps:

(a)   Find out average trading profit.

(b)  Find out the number of year purchase (it will always be given in problem).

(c)   Goodwill: Number of year purchase × Average trading profit.

Goodwill by purchase of future maintainable profit method: Steps:

(d)  Find out future maintainable profit.

(e)   Number of year purchase (given in problem).

(f)    Goodwill: No of years purchase × Future maintainable profit.

Goodwill by capitalization of future maintainable profit method: Steps:

Capitalization Value of Future Maintainable Profit = FMP x 100

                                                                                                                   NRR

c.      Calculate capital employed.

d.     Goodwill = Capitalized Value of E.M.P. – Capital Employed

Goodwill by purchase of super profit method: Steps:

(g)  Find out average trading profit.

(h)   Find out future maintainable profit.

(i)    Find out capital employed.

(j)     Find out Normal Rate of Return (always given in the problem in terms of %).

(k)  Find out number of year purchase (given in the problem).

(l)    Find out normal profit: = (Capital Employed x NRR) / 100

(m) Find out super profit:

Super Profit = Future Maintainable Profit – Normal Profit

(n)   Goodwill = Number of year purchase × Super Profit.

Goodwill by capitalization super profit method: Steps:

 Calculate super profit as discussed above.

Goodwill = Annuity Rate × Super Profit

Notes: Annuity Rate will always be given in the problem.

Q3) M / s Mehta and his son have an average profit of Rs 60,000 with a capital of Rs 4,00,000. The normal rate of return for a business is 10%. Calculate the value of a company's goodwill using the capitalization of the super-profit method.

A3)

Goodwill = Super Profit x 100 / Normal rate of return

= 20,000 × 100/10

= 2,00,000.

Working notes:

(I). Normal profit = Capital used * Normal rate of return / 100

= 4,00,000 × 10/100

= 40,000

(II) Super profit = average profit – normal profit

= 60,000 – 40,000 = 20,000

Q4) M / s Joe and John is a partnership company with Joe and John as a partner. They now have to decide to allow James to the company and therefore evaluate goodwill. The capital used at the end of the fourth year is 500,000. The normal rate of return is 15%. Suppose the interest rate is equal to the normal rate of return. Calculate goodwill using the pension law. Their interests over the last four years are:

A4)

Goodwill = Super Profit x Discount Factor = 67500 x 2.855 = 192713

Working notes:

(I) Average profit = Total profit / Years = 570000/4 = 142500

(II) Normal profit = Capital used x (Normal rate of return / 100) = 500000 x (15/100) = 75000

(III) Super profit = average profit – normal profit = 142500 – 75000 = 67500

Q5) Following are the gain for of Rakesh Bakers.

The capital adopted in 2015 is Rs350000 /-and the normal rate of return is 10% p.a. Find the value of goodwill based on a three-year purchase of business super-profit.

A5)

Step 1: Average profit = 5 years / 5 years gross profit

= 200000/5 = Rs40000 /-

Step 2: Normal profit = Capital used X Normal rate of return / 100

= Rs350000 X 10/100 = Rs35000 /-

Step 3: Super Profit = Average Profit – Normal Profit

= Rs40000 – Rs35000 = Rs5000 /-

Step 4: Goodwill = Super Profit X Years of Purchase

= Rs5000 X 3 = Rs15000 /-

Q6) The benefits of Bootwala & Sons are:

The capital adopted in 2015 is Rs900000 /-and the normal rate of return is 10% p.a.

Find the value of goodwill based on a three-year purchase of business super-profit.

A6)

Step 1: Average profit = 5/5 years gross profit

= 575000/5 = Rs115000 /-

Step 2: Normal profit = Capital used X Normal rate of return / 100

= Rs900000 X 10/100 = Rs90000 /-

Step 3: SP=AP-NP

= Rs1150000 – Rs90000 = Rs25000 /-

Step 4: Goodwill = Super Profit X Years of Purchase

= Rs25000 X 3 = Rs75000 /-

Q7) Below are the benefits of Harsh Bakers

The capital adopted in 2015 is Rs400000 /-and the normal rate of return is 10% p.a.

Find the value of goodwill based on a three-year purchase of business super-profit.

A7)

Step 1: Average profit = 5/5 years gross profit

= 290000/5 = Rs58000 /-

Step 2: Normal profit = Capital used X Normal rate of return / 100

= Rs400000 X 10/100 = Rs40000 /-

Step 3: SP = AP – NP

= Rs58000 – Rs40000 = Rs18000 /-

Step 4: Goodwill = Super Profit X Years of Purchase

= Rs18000 X 3 = Rs54000 /-

Q8) The value of the business's net worth is Rs.1240000 /-. This business has made an average profit of Rs150000 /-in the last few years. The normal rate of return for similar types of businesses is 10%. Find the value of goodwill in a capitalized way.

A8)

Step 1: Market capitalization of average profit = average profit / normal rate of return X 100 Market capitalization of average profit = 150000/10 X 100 = Rs. 1500000 /-

Step 2: Goodwill = Capital Value – Net Asset Value

= 1500000 – 1240000 = Rs260000 /-

Q9) The value of the business's net worth is Rs.460000 /-. The business has made an average profit of Rs90000 /-in the last few years. The normal rate of return for similar types of businesses is 15%. Find the value of goodwill by the capitalization method.

A9)

Step 1: Market capitalization of average profit = average profit / normal rate of return X 100 Market capitalization of average profit = 90000/15 X 100 = Rs. 600000 /-

Step 2: Goodwill = Capital Value – Net Asset Value

= 600000 – 460000 = Rs140000 /-

Q10) The value of the business's net worth is Rs.790000 /-. The business has made an average profit of Rs500000 /-in the last few years. The normal rate of return for similar types of businesses is 5%. Find the value of goodwill by the capitalization method.

A10)

Step 1: Market capitalization of average profit = average profit / normal rate of return X 100 Market capitalization of average profit = 500000/5 X 100 = Rs. 1000000 /-

Step 2: Goodwill = Capital Value – Net Asset Value

= 1000000 – 790000 = Rs210000 /-

Q11) Find the value of goodwill from the capitalization of the super-profit method

from the following details of Krishna Coffee House.

The capital adopted in 2015 is Rs250000 /-and the normal rate of return is 10% p.a. Solution:

Step 1: Average profit = 5/5 years gross profit

= 300000/5 = Rs60000 /-

Step 2: Normal profit = Capital used X Normal rate of return / 100

= Rs250000 X 10/100 = Rs25000 /-

Step 3: SP=AP-NP

= Rs60000 – Rs25000 = Rs35000 /-

Step 4: Goodwill = SP X 100 / NRR

= Rs35000 / -X 100/10 = Rs350000 /-

Q12) Find the value of goodwill according to the market capitalization of the Super Profit Act from the following details of Bihad & Sons.

The capital adopted in 2015 is Rs200000 /-and the normal rate of return is 10% p.a.

A12)

Step 1: Average profit = 5/5 years gross profit

= 124000/5 = Rs24800 /-

Step 2: Normal profit = Capital used X Normal rate of return / 100

= Rs200000 X 10/100 = Rs20000 /-

Step 3: SP=AP-NP

= Rs24800 – Rs20000 = Rs4800 /-

Step 4: Goodwill = SP X 100 / NRR

= Rs4800 / -X 100/10 = Rs48000 /-

Q13) Find the value of goodwill according to the present value of the Super Profit Act from the following details of Bashir & Sons.

A13)

Goodwill Value = Rs159715 /-

Q14) Below are the five-year profits of Ambika Store.

Calculate the value of goodwill based on a two-year purchase of a five-year average profit.

A14)

Step 1: Total profit for 5 years = Rs.330000 /-

Step 2: Average profit = 5/5 years gross profit.

= Rs330000 / 5 years = Rs.66000 /-Step 3: Goodwill = Average profit x 2 years

= Rs.66000 / -X 2 = Rs 132000 /-

Q15) Below are the benefits of Girija Tea Depot.

There was an extraordinary increase in Rs45000 /-in 2016 and an extraordinary loss of Rs25200 /-in 2017.

Calculate the value of goodwill based on a 4-year purchase of a 6-year average profit.

A15)

Step 1: Total profit for 6 years = Rs.970200 /-

Step 2: Average profit = 6/6 years gross profit.

= Rs970200 / 6 years = Rs.161700 /-Step 3: Goodwill = Average profit X 4 years

 = Rs.161700 / - X 4 = Rs 646800 /-

Key takeaways:

3.2 Valuation of Brands

What is a brand rating?

Brand valuation as a concept is the net worth of tangible and intangible assets of all companies. Brand valuation is a way to estimate the overall value of a brand. Brand valuation is a method of valuing brand value based on financial performance, brand equity, customer perception, and so on.

Previously, brand valuations were based solely on the value of tangible assets, but in 2005, after International Financial Reporting Standards (IFRS), tangible assets as well as intangible assets such as brands and other acquired intangibles I admitted that it would be evaluated. On the company's balance sheet. This is because proper brand valuation measures have been established, over time the company has split, one owns all the land, bricks, mortar, the other is the brand name, trademark, etc. It is beneficial. As part of brand management, brand valuation helps you understand your company's overall brand equity. 

It refers to a unique name or symbol or design or mark given to a product or service to easily identify the product or service and distinguish it from the products and services of competitors. Brands can be legally protected under trademark law. For example:

Brand evaluation approach

Brand valuation is the three main approaches to brand valuation, and the brand valuation model is the same as the model for measuring tangible assets. they are:

1. Cost approach

2. Market approach

3. Income approach

These are the models / methods by which a brand is valued, brand value is very important in today's market, and you need the right and experienced people to do the brand valuation to talk about the company's total asset value.

1) Cost-based approach: This includes all costs incurred to create, maintain, and promote the brand name and image of an entity. Replacement costs are also included. The cost of launching a new brand to replace the old one.

2) Market-based approach: It refers to the highest value that buyers and sellers mutually agree to exchange after negotiation. This can also be considered as the market value that is generally estimated or required by the market.

3) Revenue-based approach: Refers to the future revenue value that the brand directly contributes to. It consists of additional revenue that a company can generate for a branded entity product or service.

4) Formula-based approach: Refers to the parameters or criteria that a valuation company uses to find the value of a brand. (Criteria may include profit, demand, customers, cost savings, competitive advantage, etc.)

Importance of brand evaluation

Brand valuation has been much used by businesses for many purposes.

1. Mergers and acquisitions: Generally, a company or organization does not pay book value when acquiring another entity. Currently, the difference between the acquisition price paid and the book value is known as goodwill. Goodwill can be defined as the value of an entity that is not directly attributable to tangible assets and liabilities. Estimating monetary value using a brand's brand valuation helps determine a premium for the book value payable by the buyer.

2. Licensing: One approach to leveraging the value of a solid brand is to expand or license the brand. Both licensors and licensees can financially benefit from a series of approved actions. Licensors profit from another source of income that requires minimal capital speculation. Licensees benefit by lowering channels, promoting, and earning costs for their clients.

3. Financing: Companies do not mark monetary records as a long-term resource, but the monetary market recognizes the commitment that brands hold to the respect of investors. Organizations with solid brands always get better budget terms than organizations with poor brands. The higher the brand's reputation, the better the conditions.

4. Brand Review: Brand investment reviews typically compare between brands and with competitors, comparing hard measures such as sales and market share with soft measures such as reputation and awareness. For some brands, it is also important to judge their monetary value. Brand valuation allows companies to measure the return on their brand investment and develop appropriate investment strategies across the brand's portfolio.

5. Budget Allocation: The marketing mix is   utilized by advertisers who need to make decisions regarding spending plans and asset allocation. Organizations can now more accurately measure the combination of promotional tools needed to increase both spending proficiency and advertising feasibility. For some organizations, brand valuation is a fundamental element of the marketing mix.

Benefits of brand evaluation

The specific benefits of branding for businesses are:

1. Brand valuation changes the company's outlook, making the executive framework that first recognizes and then measures the brand's key drivers, both in terms of advertising and money (investor valuation), as an incentive for the company.

2. Build a framework that captures the past filled with these brand valuation drivers, reduce costs, and lend effectiveness to valuation procedures sometime in the future.

3. It allows the brand to be monitored against standards that are indistinguishable from the various interests of the company.

Disadvantages of brand name evaluation

The disadvantages of brand name evaluation are:

1. Most models don't meet prerequisites like reliability, undeniable nature, and objectivity.

2. The model during which all buyers are located isn't suitable for mergers and reservations, announcements, spending arrangements, brand approvals, and infringement of brand name rights because it doesn't consider money-related quality. Conversely, all monetarily placed models brand executives without considering branding plans.

3. Only a brand valuation model that integrates both placed buyers and budget-based perspectives considers money-related angles also as non-financial perspectives. Brand valuation is then very abstract about the change from non-financial quality to monetary quality, for instance by utilizing an experimentally tried scoring model. Moreover, they're not simple due to their business foundation.

4. There's no unlimited approved model.

5. An additional and sometimes neglected point is that the organization's comprehensive view, with few corporate valuation approaches.

Brand evaluation example

Here are some samples of brand valuations:

1. Amazon's brand value in 2018 is $ 150.8 billion. In terms of market capitalisation and revenue, Amazon is that the largest online business.

2. Apple's brand value in 2018 was $ 146.3 billion, ranking second in brand value, a 37% change from last year.

 It's been reviewed and published by the MBA Skool Team. MBA Skool content is made for educational and academic purposes only.

Key takeaways:

3.3 Valuation of Patents, Copyright and Trademark

Patent:

Meaning: An exclusive right granted to a corporation or individual to manufacture and sell an invention. it's depreciable. it's given for a particular number of years.

Importance of using patents:

Patents are often evaluated within the following ways:

1) Cost-based method: This method calculates this value of the particular cost of developing or exchanging a patent to get the entire value of the legal right. Development costs also are included.

2) Income-based method: This method considers this value of income which will be generated within the future.

3) Market-based method: This method takes under consideration the worth of comparable patents prevailing within the market. the worth paid as a license agreement fee for such an identical invention is taken into account the worth of the patent.

Copyright

Meaning: Printing, publishing, performing, filming and recording literary, artistic and musical material is that the exclusive right of the author or creator. This right prevents others from publishing the author's work without legally assigning (permitting) it. This right remains with the originator for a particular number of years.

Definition: Copyright may be a bundle of rights granted by law to the creators of literature, drama, music, works of art, and therefore the creators of cinematograph films and recordings. The rights provided under copyright law include the proper to repeat the work, convey the work to the general public , modify the work, and translate the work. The extent and duration of protection provided under copyright law depends on the character of the protected work.

The Importance of Using Copyright:

Copyright evaluation:

Revenue or Revenue-Based Method: this is often an estimate of total future revenue which will be generated by subtracting the depreciation amount from the estimated useful life.

Trademark:

Meaning: An exclusive right within the sort of logos, marks, symbols, designs, names, brands, etc., which owns such rights and legally allows others to use the corporate name, mark. Can only be employed by individuals or groups prohibited by. Or logo.

Definition: A trademark is defined within the Trademark Law of 1999 as follows. "Trademark means a mark which will be represented graphically and distinguishes one person's goods or services from others' goods or services, and should include the form, packaging of the products. And a mixture of colours." Such marks can include signatures, names, labels, headings, and far more.

Importance of using trademarks:

Trademark Evaluation:

1) Cost-based method: All costs of developing, maintaining, exchanging, and promoting a trademark are the worth of the trademark during this way.

2) Income-based method: The sum of the traditional income and therefore the estimated additional income within the future is taken into account the worth of the trademark.

Key takeaways:                                         

References: