How is the value of intangible assets calculated? Value of Intangible Assets There are several approaches that can be used to calculate the value of intangible assets such as market approach, income approach, cost approach and the relief from royalty approach. With the help of these approaches, business organization or accountants can easily and effectively calculate and measure the value of intangible assets (Rosner & Shropshire, 2004).

 

Market approach: According to this method, intangible assets are valued by comparing recent sales or other transaction involving similar assets in similar marker.

 

Market approach has increasingly become the preferred approach in the valuation of intangible assets because the market approach is practical, logical, and applicable to all types of intangible assets.

 

This approach is best if an active market exit (Anson, Suchy & Ahya, 2005). The market approach utilizes actual transaction values derived from the sale or license of similar assets. The Relief from Royalty Approach: This is also a significant method for the calculation of intangible assets. With the help of this method, the value of intangible assets is calculated as the present value of royalties that the company is relieved from paying as a result of owning the assets (Rosner & Shropshire, 2004).

 

Cost Approach: This approach is based on the economic principle of substitution. The cost method assesses the value of assets by measuring the expenditures necessary to replace the assets. Income approach: This approach is based on the principle of anticipation and rational expectation. As per this method, the value of intangible assets can be calculated by estimating the expected future income from the use of intangible assets after this, this future value of income is discounted to calculate the current value

 

References

 

Anson, W., Suchy, D. P. & Ahya, C. (2005). Intellectual property valuation: a primer for identifying and determining value. USA: American Bar Association. Rosner, S. & Shropshire, K. L. (2004). The business of sports. UK: Jones & Bartlett Learning.