Business Valuation

Question 1

What is an Intangible Asset according to RICS Definition?

Answer 1

A non-monetary asset without physical substance, granting rights and economic benefits to the owner.

Intangible assets include patents, trademarks, and copyrights.

Question 2

What is Goodwill according to RICS Definition?

Answer 2

Any future economic benefit from a business or asset group that is not separable.

Goodwill often arises when a company acquires another for more than the fair value of its net identifiable assets.

Question 3

What characteristic distinguishes intangible assets from tangible ones?

Answer 3

They lack physical substance but provide economic value.

Question 4

What is the key feature of goodwill that makes it different from other intangible assets?

Answer 4

It is not separable from the business or asset group.

Question 5

Where can professionals find guidance on intangible assets and goodwill?

Answer 5

From standard and technical guides issued by professional bodies (e.g., RICS).

Question 6

Which RICS publication sets the standard for intangible asset valuation?

Answer 6

RICS Valuation – Global Standards (Red Book Global Standards).

Question 7

Term: Marketing-related Intangible Assets

Answer 7

Examples: Trademarks, trade names, internet domain names, non-competition agreements.

Description: Assets related to branding and customer recognition.

Question 8

Term: Customer-related Intangible Assets

Answer 8

Examples: Customer lists, customer contracts, customer relationships.

Description: Assets based on relationships with existing or potential cu

Question 9

Term: Artistic-related Intangible Assets

Answer 9

Examples: Licensing agreements, lease agreements, franchise agreements, supplier contracts.

Description: Rights or privileges arising from contractual arrangements.

Question 10

Term: Technology-based Intangible Assets

Answer 10

Examples: Patents, software, trade secrets, proprietary technologies.

Description: Assets providing value through innovation and technical kno

Question 11

Term: Data-related Intangible Assets

Answer 11

Examples: Proprietary databases, algorithms, usage data.

Description: Valuable non-physical assets derived from the collection an

Question 12

Q: What distinguishes a contract-based intangible asset from a customer-related one?

Answer 12

A: Contract-based assets arise from formal agreements, while customer-related assets are based on relationships and behavior patterns.

Question 13

What are the methods of valuing intangible assets and goodwill, commonly used in professional practice?

Answer 13

A:

1. Income Approach - Values an asset based on the present value of future economic benefits (e.g., cash flows).
   EX: Discounted Cash Flow (DCF), Relief from Royalty method.
   Used When: Future income from the asset can be reasonably estimated.
2. Market Approach - Values an asset based on comparable market transactions.
   EX: Using sales of similar businesses or licenses.
   Used When: There are active markets or recent transactions involving similar assets.
3. Cost Approach - Values an asset based on the cost to recreate or replace it, minus depreciation or obsolescence.
   EX: Reproduction cost, replacement cost.
   Used When: The asset is unique or lacks reliable market data or income streams.

Question 14

What is the Relief from Royalty Method?

Answer 14

Estimates value by calculating the present value of royalties saved by owning the asset.

Used for trademarks, patents, copyrights.

Question 15

What is the Multi-Period Excess Earnings Method (MPEEM)?

Answer 15

A form of income approach where the value is based on earnings attributable to the intangible asset after deducting returns on other assets.

Used for customer relationships, goodwill.

Question 16

Why might the cost approach be unsuitable for goodwill?

Answer 16

Because goodwill reflects future benefits that cannot be recreated or replaced like a physical asset.

Question 17

Which approach is often used for valuing goodwill during acquisitions?

Answer 17

Income approach—especially DCF or MPEEM—due to its focus on future benefits.

Question 18

Red Book Global Standards VPGA 1

Answer 18

Valuation for inclusion in financial statements.

Question 19

Red Book Global Standards VPGA 3

Answer 19

Valuation of businesses and business interests.

Question 20

Red Book Global Standards VPGA 6

Answer 20

Valuation of intangible assets.

Question 21

RICS Standard – Valuation of Intellectual Property

Answer 21

Provides guidance on valuing intellectual property assets.

Question 22

IAS 38 – Intangible Assets

Answer 22

Covers business valuation and the treatment of intangibles under IFRS.

Question 23

ASC 350 – Intangibles – Goodwill and Other (US)

Answer 23

Addresses accounting for goodwill and other intangible assets under US GAAP.

Question 24

ASC 606 – Revenue from Contracts with Customers (US)

Answer 24

Governs how revenue is recognized in financial statements.

Question 25

IFRS 3 – Business Combinations

Answer 25

Provides accounting guidance on business combinations under IFRS.

Question 26

ASC 805 – Business Combinations (US)

Answer 26

US GAAP counterpart to IFRS 3 for business combinations.

Question 27

IFRS 13 – Fair Value Measurements

Answer 27

Defines fair value and sets out measurement and disclosure requirements.

Question 28

ASC 820 – Fair Value Measurements and Disclosures (US)

Answer 28

US GAAP standard for fair value measurement and related disclosures.

Question 29

IFRS 16 – Leases

Answer 29

Provides guidance on accounting for leases under IFRS.

Question 30

ASC 842 – Lease Accounting

Answer 30

US GAAP standard on lease accounting.

Question 31

IAS 36 – Impairment of Assets

Answer 31

Covers the impairment testing of assets under IFRS.

Question 32

ASC 360 – Property, Plant and Equipment (US)

Answer 32

Focuses on accounting for long-lived asset impairment.

Question 33

IVS 105 – Valuation Approaches and Methods

Answer 33

Outlines different valuation approaches and techniques.

Question 34

IVS 200 – Business and Business Interests

Answer 34

Covers valuation of businesses and their ownership interests.

Question 35

IVS 210 – Intangible Assets

Answer 35

Guidance on valuing intangible assets.

Question 36

IVS 220 – Non-Financial Liabilities

Answer 36

Deals with the valuation of liabilities that are not financial in nature.

Question 37

IVS 230 – Inventory

Answer 37

Guidance on valuing inventory.

Question 38

IVS 500 – Financial Instruments

Answer 38

Addresses valuation of financial instruments.

Question 39

What is the purpose of the Mandatory Performance Framework (MPF)?

Answer 39

To provide valuation professionals with guidance on the level of documentation and performance needed to support fair value measurements for financial reporting purposes.

Question 40

Does the MPF provide 'how to' valuation guidance?

Answer 40

No, it does not provide illustrative examples or instructions on how to perform a valuation, but instead focuses on 'how much' documentation is required.

Question 41

What types of valuations does the MPF apply to?

Answer 41

Valuations of businesses, business interests, intangible assets, certain liabilities, and inventory for financial reporting purposes.

Question 42

Which professional organizations developed the MPF and its application?

Answer 42

RICS (Royal Institution of Chartered Surveyors), AICPA (American Institute of Certified Public Accountants), and ASA (American Society of Appraisers).

Question 43

Why is the MPF important for global valuation professionals?

Answer 43

Because fair value measurements are used by many global public companies, especially those listed on large exchanges like NYSE and NASDAQ, and the MPF helps ensure consistency and transparency in valuation reports.

Question 44

What does the MPF aim to make easier for investors, auditors, and regulators?

Answer 44

Understanding how fair value measurement is applied in determining the value of businesses and intangible assets.

Question 45

Is the MPF considered authoritative?

Answer 45

No, it is a practical non-authoritative framework.

Question 46

What does the MPF define in terms of documentation?

Answer 46

It defines the level of documentation and performance necessary to provide supportable and auditable fair value measurements.