Intangible Asset Valuation
ASC 805 (formerly FAS 141R) and ASC 350 (formerly FAS 142)
If your company has recently merged with or acquired another company, a valuation allocating the purchase price to the acquired tangible and intangible assets must be completed to ensure proper financial reporting and income tax treatment after a business combination. Intangible assets represent certain legal rights or competitive advantages developed or acquired by a business enterprise, such as non-compete agreements, customer lists, employment contracts, and in-process research and development.
In addition to purchase price allocations, the appraisal of intangible assets can also be required for goodwill impairment testing, sales and acquisitions, corporate planning, establishing royalty rates, strategic alliances, financing transactions and cost-sharing arrangements. Since market transactions for intangible assets are uncommon, the valuation of intangible assets often involves linking cash flows to each asset class and developing supportable risk rates for those assets. The cash flows and risk rates for each intangible asset are determined by an analysis of a variety of factors, including the economic value of the assets to its owners, the enhancement the asset may provide to other assets, the intended future utilization of the asset, and the economic life of the asset.