Intellectual Property
Intangible assets are all the elements of a business enterprise that exist in addition to monetary and tangible assets (Smith & Parr, 2000, p. 15).
Intellectual property refers to patents, trademarks, copyrights and trade secrets or know-how (proprietary technology). The owner of intellectual property is potentially legally protected from the exploitation of the property by others.
Proprietary technology can include data, technical experience, knowledge and processes and techniques. The proprietary technology often provides economic benefit, through cost reductions, and creates a barrier to entry (Smith & Parr, 2000, p. 31 and 32).
Experience
Lotus Amity values intangible assets, including intellectual property. Valuation reports are often prepared for purchase price allocation and financial reporting and for tax purposes.
Past intellectual property valuation matters include:
- The valuation of management advisory and promoter agreements and the brand associated with the acquisition of a large superannuation service provider. The valuation was provided as part of the purchase price allocation report for financial report purposes, per AASB 3 Business Combinations and AASB 138 Intangible Assets. The agreements were valued using the Excess-Earnings-Method and the brand using the Relief-from-Royalty Method. Under the Excess-Earnings-Method, future revenues were estimated for the agreements, contributory assets were identified and measured (including the assembled workforce), a return on the contributory assets was estimated and deducted, and an appropriate cost of capital estimated and used to calculate the present value.
- The valuation of process automation and software applications developed within the construction industry. Process automation included customer service, logging jobs, reporting and project management, resulting in cost savings and the ability to respond quickly to disaster related work. The valuation report was for the ATO to determine the cost base for a related party transfer. The report adopted the With-and-Without Method and the Relief-from-Royalty Method and estimated the expected economic life of the applications. Under the With-and-Without Method estimated future revenue, revenue growth and profit margines were compared with and without the applications and discounted back using an estimated cost of capital. Under the Relief-from-Royalty Method a royalty rate was developed, using observed royalty agreements, and applied to revenue projections.
- The valuation of the brand and internally developed documents associated with an end-to-end encrypted messaging service application and digital asset tokens. The valuation was provided for tax purposes in relation to a proposed international restructure. The brand was valued using the Relief-from-Royalty method and the documents using the Replacement Cost Method.