Identification And Valuation Of Intangible Assets

Technology is the key driver to. productivity, while the asset is the fundamental security to corporation’s development. Intangible asset is an important and integrated part of asset. With the rapid development of science and technology, many hi-tech companies currently have a large number of it. Intangible asset then becomes the solid support for their future growth. In modern days, a complete and systematic set of methodologies of intangible asset identification and valuation is needed at greater scale. Since intangible asset plays a significant role in corporation’s value, the evaluation of it becomes an inevitable issue and has a special meaning in corporate management.This thesis begins with summaries of both international and domestic research studies and ends with the characteristics of intangible assets. Based on these studies, the characteristics of intangible assets can be summed up as:they have no physical appearance, but can be utilized in corporations’production and operation to create economic benefit. Then it shifts from research studies to the different standards in the industry:International Financial Reporting Standards and International Valuation Standards in specific. Both of them have some similar views on intangible asset in terms of definition:it is an integral part of asset, but it differs largely from real and financial asset. It can be regarded as a valuable income generator and can be operational in the long term. The income generating ability could be multiplied as well under certain circumstances.The history and development of the intangible asset is presented after the summary of research study and definition on intangible asset in which the concept originated from ancient Greek. Meanwhile, the evolvement of intangible asset’s definition in China is discussed with special attention as well as related questions.After the study on intangible asset itself, the identification and classification of it is discussed. The different factors considered during the identification process internationally and domestically are compared and contrasted. The fundamental differences between intangible asset and the goodwill are talked about as well. Discussion about valuation of intangible asset is then followed. The three most often used evaluation methods:market approach, income approach, cost approach are compared and analyzed first. Then the assumptions used in valuation work are summarized and presented, including liquid market assumption, continuous operation assumption, liquidation assumption, currency assumption etc. At last, the valuation methods’hierarchy and their characteristics are discussed individually.The last but most important part of this thesis is the case study. Actual project in the work was used to illustrate how the theoretical contents previously discussed and studied were applied to real life scenario. This case study is about company acquisitions, as the acquirer is public listed, purchase price allocation and intangible asset valuation were required by the legislative framework in listed capital market. The case study works through the valuation process from an independent valuer’s perspective. It starts from how the valuation date is set and then described which standards are applicable in the case, how to use these standards to identify intangible asset, comparison of the three different valuation methods and which one is chosen, what information was provided by client and used, which assumptions were made in the valuation, how the discount rate was calculated and what were discussed among client, auditor and valuer. The valuation models were attached for reader’s reference.The conclusion and suggestion of this thesis are as follows:there are numerous assumptions used in the intangible asset valuation, the valuation result is under the provision that all assumptions were met. Therefore, this valuation result is extremely sensitive to any changes of the assumptions. Before carry out valuation work, the valuer needs to and should correspond actively with client about the reliability of financial forecast produced to make sure the most accurate valuation result is achieved. As the identification and valuation of intangible asset in China is still at the early stage of its development, valuer has the responsibility in the daily work to provide necessary guidance for client, to increase both the awareness and understanding of the valuation work.