Technological Intangible Assets Evaluation Method

Along with the preliminary establishment of a market economic system in China, the characteristics of the market economy is becoming increasingly salient, the non-market value measurement approaches and practices have come under fierce criticism. The formulas, parameters, methods and procedures for asset valuation used in the command economy are obviously incompatible with the current market environment. In order to facilitate the rational circulation of the factors of production, their real value must be accurately appraised and priced, reflecting the free market conditions rather than that of the command economy. Furthermore, international trade and economic co-operation also require that the asset valuation methods match international rules and practices. For instance, in Sino-foreign joint ventures, foreign companies do not recognise the cost approach, rather they require the use of an earnings or a market approach. With this, the main difficulty lies in appraising the value of the intangible assets. In the study of valuation methods of intangible technology related assets, within the context of the three essential asset valuation methods and the related applied models, this thesis attempts to discuss:* The characteristics of each appraisal method, its theoretical mechanism and the applicable conditions; * The determination of the important parameters under different appraisal objectives, stages and conditions;* The establishment of a suitable valuation model; and* The selection of particular appraisal methods.Based on an analysis of several commonly used valuation methods for technology related intangible asset, it argues that the value of a technology product is determined by the competitiveness of the product itself. It is neither depending on the development cost of such product, nor related to its Hi-Tech contents. By using expert opinions and statistical analysis, this thesis demonstrates that the economic system in China has possessed the main characteristics of a market economy, therefore the market approach and theearnings approach based on the perfect competition assumption and efficient market theory are applicable to China. It then focuses on an examination of the comparative factors and procedures of the market approach; the key elements of the future cash flow measurement of the earnings approach; and the capital asset pricing model (CAPM) and the weighted average capital cost model (WACC). These methods and models may help to eliminate and mitigate the uncertainty in the valuation of technology related intangible asset; decrease subjectivity and increase quantifiability in the valuation process; and thus be more acceptable to all parties involved.It is worthwhile to note that as a newly emerged market economy, reliable and accurate market information is still limited in China and the valuation of intangible assets remains to be improved. The effective use of market approach and earnings approach in asset valuation depends on the further development of market economy and the availability of appropriate data on the capital, asset exchange and technology markets.