Abstract
M.Comm.
Intangible assets are increasingly becoming the critical determinant of value
creation and future profitability of most businesses. There is a clear distinction
between the accounting treatment of physical assets and are reported on the firm’s
balance sheets, but intangible assets are by large written off in the income
statement, along with regular expenses such as wages, rents and interest. This
distorted treatment of intangibles in an accounting sense, has dire consequences
for managers, investors and policymakers relying on financial information, thus
giving an extremely limited view of a company’s potential for value creation and are
virtually worthless as a basis for assessing the value of intangible assets as a
whole.
This paper is limited to the valuation of intellectual property and intangible assets
not reflected on the balance sheet and is primarily aimed at researching, exploring
and identifying various intangible asset valuation techniques used to make
investment decisions; the advantages and disadvantages of each valuation
method so identified; identifying which one or more of the valuation methods
identified is the most appropriate measure to valuate intangible assets; identifying
the accuracy of the most appropriate valuation method selected as compared with
the other methods.
The problems posed by intangible assets appear to be based on two levels. The
first is the difficulty to identify, collect and analyse data regarding intangible assets.
The second overlapping level is the lack of external financial reporting on
intangibles. The problem herein manifests itself in the lack of recognition of the
current accounting principles, thus resulting in intangible assets not being
systematically reported in financial statements leading to a lopsided view of the
assets employed by a company to generate revenues.