Valuation of Intangible Assets and Intellectual Property
Intangible assets are the portion of the company's assets that have a value and worth but do not have tangible content. These are used to turn a profit and are capable of generating income. Depending on the purpose and actual function of intangible assets, they can be divided into three basic groups: intellectual property, property rights and protracted (capitalized) expenditures.
Appraisal of intangible assets is particularly important for high-tech industry companies. For large and well established companies it is primarily the value of intangible assets that makes an noticeable contribution to the overall value of the company. A company that knows the real value of its intangible assets and uses them wisely is positioned to secure a strong position on the market.
The appraisal of intangible assets is divided into four main parts:
Intellectual property (IP) appraisal is the process of determining the value of a set of rights to the results of intellectual activity, the ownership of which assigns the owner a particular advantage. Intellectual property appraisal is one of the most complicated and deep-rooted challenges of both the theory and the practice of the global high-tech business world. Because of the vast variety of types of IP, it is impossible to apply standard methods and approaches in appraising them. In any case, the appraisal is a monetary measure of the amount of money a juridical or physical entity is prepared to pay to own the rights to specific outputs of intellectual labor.
It is necessary to do an appraisal on intellectual property when the value of the intellectual property is being contributed to the authorized capital of a company or toward the purchase and sales of companies, privatization, mortgaging or being used to conduct other commercial transactions.
Once intellectual property is appraised, it can be then entered onto a company's balance sheet as an asset. This assigning of value makes amortization possible and thereby establishes corresponding depreciation fund allowances to offset production costs.
Various types of intangible assets appraisals: