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

Change in accounting estimate

Change in accounting estimates (IAS 8 32 – 39) is an accounting rule which is easily explained in a few captions of bullet points, as follows.

Basics:

  • Use of estimates is an integral process of the accounting process.
  • Use of estimates is in line with matching concept and conservatism concept
  • Use of estimate is needed due to the inherent uncertainties in business activities
  • There is a need to revise the estimate due to changes in circumstances on which the estimate was based or as a result of new information, more experience or subsequent developments.

Examples of changes in accounting estimates include:

  • Changes in the estimate of the collectibility of trade debtors;
  • Changes in the estimate of useful lives or depreciation
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Measurement under IFRS

The standards for which the IASB is responsible – International Financial Reporting Standards (IFRS) – are one collection of financial reporting practices. They are increasingly important because of the growing number of companies around the world (especially listed companies) that are required to comply with them, and the growing number of countries – including the UK – that model their own more general financial reporting requirements on them.

IFRS incorporates and builds on the accumulated, often inconsistent practical solutions devised by national standard-setters to deal with financial reporting problems that have emerged over many years, solutions which are in turn built on the accumulated business practices of centuries. IFRS is not a completely new and uniform approach to financial reporting, Read more

Deferred tax assets – Future tax profits

The availability of future taxable profits – a problem in four parts Deferred tax assets – Future tax profits

The best starting point for determining the availability of future taxable profits is a company’s own business planning cycle and resulting forecasts. Using the company’s forecasts to assess the value of assets with potentially significant impact is not a unique exercise for most telecom operators. Given the significant balances of goodwill, other intangible and tangible assets, impairment testing is an important element of their financial reporting process. Deferred tax assets – Future tax profits

Impairment tests generally are based on approved budgets, which result from a robust budgeting process, and often external experts are involved throughout the impairment process. Often, the Read more

Food for thought for Property, plant and equipment

Economic benefits to be derived from an item of Property, plant and equipment (PPE) can be direct or indirect. An item of PPE may generate economic benefit individually or in association with other assets and liabilities.

An item of PPE like safety and environmental equipment does not generate any direct economic benefit. Still, such items are recognised as PPE since they generate economic benefits along with associated assets. For example, a piece of safety equipment creates value enhancement to a chemical processing plant as the plant is not permitted to operate without the safety equipment. [IAS 16 7 and IAS 16 11]

Component-wise recognition of PPE Food for thought for Property, plant and equipment

A complex PPE is … Read more

IFRS Measurement requirements

The Standards in International Financial Reporting Standards (IFRS) are one collection of financial reporting practices. They keep important because of the growing number of companies around the world (especially listed companies) that are required to comply with them, and the growing number of countries, that continue to model their own more general financial reporting requirements on them.

IFRS incorporates and builds on the accumulated, often inconsistent practical solutions devised by national standard-setters to deal with financial reporting problems that have emerged over many years, solutions which are in turn built on the accumulated business practices of centuries. IFRS is not a completely new and uniform approach to financial reporting, but the outcome of a long and continuing evolution.

Regarding measurement … Read more