Intangible assets valuation methodologies Assignment

Intangible assets valuation methodologies - Assignment Example Cost based valuation approach is to measure the future benefit from the ownership of the tangible asset. The valuation of intangible assets is affected by the cost of substitute intangible asset. The cost based valuation approach also includes the new reproduction cost of the asset after deducting the tax. The cost approach measures the total cost of the duplicate intangible asset of same functionality in current prices. Functionality of the intangible asset is the performance of the job for which it was introduced. According to the cost based valuation approach of intangible assets include direct cost, indirect cost, the developer’s profit of the intangible asset and opportunity cost. The direct and indirect cost of intangible assets are easily identified and quantified while developer’s profit is comparatively difficult as it can be calculated through different procedures. All the four types of costs including direct, indirect, developer’s profit and opportunity cost are included in the valuation of intangible asset through cost based approach. The valuation should also include the physical deterioration, functional and economic obsolesce. The depreciation on the intangible asset is subtracted from the current value. Market based valuation approach is the perception of the economic value of the intangible asset. This valuation approach is based on supply and demand and market efficiency. The value of an intangible asset can valued from the sale or transfer of the asset with same features in the same market. This approach is more suitable for active assets so that several examples can be found for the valuation of the asset. Market based valuation is more logical, practical and applicable on intangible assets. The most reliable fair value is the quoted market price of the intangible asset in the active market. The first step in valuation through market approach is collection of data from