From the category archives: Valuing Intangible Assets
Valuing Intangible Assets
Compare the balance sheets of three companies: Pacific Gas & Electric, Wal-Mart and Google. You’ll find that the assets listed by PG&E and Wal-Mart provide a fairly accurate indicator of what these companies do. Power plants account for more than two-thirds of PG&E’s assets. Stores account for more than half of Wal-Mart’s assets, followed by inventory (20%). Now take a look at Google. Cash accounts for more than half its asset value. Property and goodwill each provide for about ten percent of Google’s reported assets. Is Google a bank? Nowhere on its balance sheet does it list its proprietary technology, its customer base or its universally-recognized name.
When we talk about valuing intangible assets, we’re not talking about assigning value to a will-o’-the-wisp. Does anyone doubt that Google’s technology is valuable? We need to value intangible assets because the economy has changed. Ba ...
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The Appraisal Foundation has released the first of its “best practices” guides for valuations in financial reporting. This one addresses the issue of contributory asset charges and is available on The Appraisal Foundation’s website:
This monograph, named “The Identification of Contributory Assets and Calculation of Economic Rents” is the work of a committee established by the Appraisal Issues Task Force (AITF). The AITF has other committees at work which will be releasing guidance on additional topics related to valuations in financial reporting. The goal of this effort is to reduce “diversity in practice.”
Valuing intangible assets for financial reporting is a tricky business. Hire two well-qualified appraisers to value the same collection of assets, and it’s likely they will come up with different values. Some diversity is unavoidable. Valuation, after al ...
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