Royalty Avoidance Approach

One method to determine the market value of Intellectual Property assets like patents, trademarks, and copyrights is to use the royalty avoidance approach (also known as Relief from royalty or Royalty Relief). This approach determines the value of Intellectual Property assets by estimating what it would cost the business if it had to purchase the Intellectual Property (IP) it uses from an outsider.

This approach requires the valuator to (1) project future sales of the products that use the technology, (2) determine an appropriate reasonable royalty rate, and (3) determine either a present value factor or an appropriate discount rate. The result is the present value of the Intellectual Property to the company. See the following example of Read more

What is Investment Property?

Investment property is real estate property that has been purchased with the intention of earning a return on the investment, either through rental income, the future resale of the property or both. An investment property can be a long-term endeavor or an intended short-term investment such as in the case of flipping, where real estate is bought, remodeled or renovated, and sold at a profit.

The way in which an investment property is used has a significant impact on its value. Investors sometimes conduct studies to determine the best, and most profitable, use of a property. This is often referred to as the property’s highest and best use. For example, if an investment property is zoned for both commercial … Read more

Simple case IFRS 16 Leases

Fixed payments depending on an index and rent free period – Last part

The first part of calculations and background information for the simple case IFRS 16 Leases is discussed on the web page linked here.

We will not repeat every quarterly payment/journal entry. However the quarterly payment as at 1 December 2015, the year-end financial closing entries and the indexing as at 1 March 2016 will be discussed here.

Qtr payment 1 December 2015:Read more

Calculations IFRS 16 Leases

Leases – Fixed payments depending on an index and rent-free period

This case is rather simple, fixed payments depending on an index and rent-free period. Here are only included the journal entries to be made at the inception of the lease contract.

This contract comprises a lease contract for the lease of office space, archive space, inside garage space and outside parking places. The contract consist of special and general conditions. The special conditions prevail the general conditions.

The lease contract has a lease term of 12 consecutive years (144 months), starting date is 1 March 2015, ending date is 28 February 2027. Tacit renewal of the agreement for a definite period of time, such as with Read more

IFRS 16 Leases


IFRS 16 Scope

IFRS 16 Leases was introduced by IASB in January 2016. IFRS 16 Leases is effective for periods beginning on or after 1 January 2019. Early adoption is allowed, but only in conjunction with IFRS 15 Revenue from Contracts with Customers because significant interactions are likely. This standard will significantly change how lessees account for leases as it removes the distinction between operating and finance leases (around 85% of lease contracts are operating leases). For lessors, IFRS 16 will only have minor effects.

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Example impairment and revaluation of a building

On January 1, 2005 OwnPlus Inc. purchased a building for €2 million. Its estimated useful life at that date was 20 years and the company uses the straight-line depreciation method.

On December 31, 2009 the government embarked on a plan to construct a fly-over adjacent to the building and the related installation reduced the access to the building thereby decreasing the value of the building. TheProperty, plant and equipment Property, plant and equipment company estimated that it can sell the company for €1 million but it has to incur costs of €50,000. Alternatively, it if continues to use it the present value of the net cash flows the building will help in generating is €1.2 million.

The basic rule is to recognize impairment if carrying amount exceeds the … Read more