home Economy Business Economics - Pokropivny SF

Business Economics - Pokropivny SF

6.3. Estimation of cost of amortization of intangible assets

In the practice of entrepreneurship are increasingly having problems with the valuation of intangible assets. This evaluation is needed in particular in the following circumstances:

- Privatization or alienation of State intangible assets;

- The inclusion of intellectual property in the authorized capital;

- Determination of the share property in the authorized capital at the enterprise restructuring (organization);

- Evaluation and reassessment of intangible assets in order to fully account for all the company's assets;

- Acquisition (purchase, sale) of rights to intellectual property;

- Preparation of financial statements;

- The valuation of collateral for a loan;

- Determination of damages for breach of rights to intellectual property;

- The organization of franchise, etc...

The specific nature of intangible assets is not materialized as the property of the enterprise reflect the peculiarities of their evaluation. The complexity of the valuation of intangible assets of enterprises due to: 1)   diversity, intellectual property rights, each of which is an original; 2) different ways of expression and forms of practical use in the enterprise; 3) the probabilistic nature of the results of valuation.

Used in practice, approaches to the valuation of intangible assets are focused primarily on the international property valuation standards (IVS). These standards were developed by the International Committee for property valuation standards (TIAVSC) and entered into force in 1994.

Assessment value of intangible assets held in a certain sequence and includes the following stages:

1) Survey of intangible assets;

2) legal expertise;

3) determination of the type of value and choice of the appropriate method (s) of valuation;

4) the information base for the evaluation;

5) calculation of the value of intangible assets on the selected method;

6) preparation of the evaluation report.

At the stage of examination of intangible assets is necessary to check the availability of material carriers that are subject to accounting.

These carriers may be in writing and (or) visual description, drawings, diagrams, product samples, floppy disks, hard disks, computers, audio and video tapes, CD-ROM and other media objects of intellectual property.

At the stage of the legal expertise necessary to identify the rights to objects of intellectual property, that is to check the availability of documents confirming the lawful possession of the property rights (patents, certificates, license agreements, contracts orders for creation of intellectual property, contracts or copyright license agreements and TP ).

In the third stage, depending on the purpose of the legal situation, other factors need to find out the type of cost. In domestic practice, evaluation of intangible assets used in basically two types of cost: inventory and market. The inventory is used for inventory, accounting, and setting the property on the balance sheet, and the market - to determine the size of payments for commercial use of the property. Methods of valuation determined by the type value as well as those for which such an assessment is carried out and how you plan to use its results.

In the fourth stage, depending on the type of value and adopted the method is carried out corresponding to the formation of an information base for evaluation. A list of the necessary information, in particular, include:

• intellectual property characteristics or products made with such objects (technical, consumer, and environmental performance parameters), if necessary, in comparison with similar or competing;
• sources of income received from the use of intellectual property (increase in sales volumes of specific or all of the products manufactured with the use of intellectual property; the price increase, depending on the product quality, savings in production when using intellectual property, proceeds from the sale (assignment) of property rights , the sale of licenses and so on. n.)
• description of the market of intellectual property (industries and areas of application of intellectual property for functional features and (or) method of application, the sales geography, market size, and others.);
• cost estimates related to the acquisition and use of intellectual property (for the acquisition of property rights for use in the production and organization of the release of goods, at the legal and other forms of protection, insurance projects of the risks with the use of intellectual property, etc..);
• cost calculations and unit price with the use of intellectual property;
• description of the risks associated with the acquisition and use of intellectual property;
• net profit estimates from the use of intellectual property.

The report (act) on the valuation of intangible assets - an official document drawn up in accordance with established procedure of the evaluation and includes:

• introduction, which sets out the purpose of the evaluation, the basis for assessment, information on the appraiser, the valuation date;
• Description of intellectual property, information on their legal protection, terms, regions and areas of action of the rights;
• characterization of specific kinds of value of intellectual property;
• study evaluation method;
• Analysis of the collected information with reference to the sources of its receipt;
• complete calculation of the valuation of intangible assets, as well as restrictions on the result obtained;
• other necessary information for assessment.

Methods of assessing the value of intangible assets. To determine the value of individual objects of the intellectual property and intangible assets as a whole (as well as in the evaluation of other property companies) in accordance with international standards of evaluation used three main approaches: cost, profitable (profitable) market. Within each of the selected approach, in turn, you can specify some specific methods to assess the value of intangible assets (Fig. 6.5).

Fig. 6.5.

A very common practice is the cost approach, the essence of which is to calculate the cost of reproduction of intangible assets.

In accordance with the method of the initial cost value of intangible assets is determined based on the financial reports of the company over the past few years. At the same time, attention is drawn by the amount of such costs and term asset creation. Implementation of the initial cost of the method provides for a procedure for the calculation:

• identifies all the actual costs associated with the creation, acquisition or implementation of intellectual property;
• adjusted cost (specified) in accordance with the value at the date of assessment of the price index;
• It is determined by the value of the accrued amortization of intellectual property.
• the value of intellectual property is determined as the difference between the value of the refined cost and accumulated depreciation.

The idea of replacement cost method is that the maximum value of an intangible asset is determined by the minimum price to be paid for the acquisition of assets of similar utility or use value.

The most suitable method for calculating the value of intangible assets is a unique method of replacement cost. The recoverable amount of an asset is determined as the sum of the expenditure required to create a new replica of the asset being valued. Usually calculations of these costs should be based on current prices for raw materials, component parts and the industry average labor costs appropriate qualifications.

Profitable (income) method comes from the assumption that the economic value of the asset is determined by the size of income today, who are hoping to get from its use in the future. In other words, the object value can be defined as its ability to produce gain in the future. Profitable approach is implemented using the methods: income capitalization, discounted future cash flows, residual income.

The procedure for the valuation of intangible assets by profit capitalization method consists of the following stages:

• identification of sources and net profit margins brought by the relevant asset;
• determining the capitalization rate of net profit;
• calculation of the asset value by dividing net income by the capitalization rate.

Implementation of the method of discounting future cash flows provides:

• assessment of future cash flows consisting of net profits from the use of intellectual property and the value of the depreciation of the object;
• determining the discount rate;
• calculation of the total present value of future profits;
• Addition of the result and the value of intellectual property, given to the current period.

The market approach to assessing the value of intangible assets is implemented by the method of comparative analysis of sales and release method of royalty.

sale of comparative analysis method involves comparing the estimated object of intellectual property with the cost of similar items sold at the market. When using the method of comparative sales analysis:

• collect information on the arrangements for the implementation of similar objects of intellectual property;
• determine the list of indicators that compare objects of intellectual property;
• adjust the actual price agreements on intellectual property rights taking into account the comparison of performance values;
• determine the value of intellectual property on the basis of the corrected actual data on the real deal.

The cost of the asset relief from royalty method is determined on the basis of conditional assumption that all intellectual property used now does not belong to him. Then part of its revenue, the company would have to pay a fee (royalty) to the owners of the intellectual property. In fact, this part of the revenue reserves at the company. It and consider additional profit generated by the data of an intangible asset. The cost of the cash flows generated on the basis of the profit is taken as the market value of the asset being valued.

Intangible assets subject to amortization. Depreciation rates set enterprise (organization), depending on the term of use of a particular type of intangible assets. Regarding intangible assets where it is impossible to establish the period of their use, the depreciation rate is determined based on the 10 years, that is 10% per year.

Questions for self-depth study

• The value of intangible resources for a modern system of management and increase production efficiency.
• Characteristics and features of the use of certain industrial property.
• The essential characteristic of intellectual property, protected by copyright and related rights.
• The nature and effectiveness of the use of "know-how" in the activity of the enterprises (organizations).
• Compliance with trade secrets as a factor in ensuring adequate economic security of the enterprise (organization).
• Essential-substantial characteristics of intangible assets of the enterprise (organization).
• Patent and licensing activities of enterprises and organizations under market conditions.
• Current problems in the valuation of intangible assets of the enterprise (organization).