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Intangible Asset Valuation

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 (For more information on valuation, download your free copy of  The Executive's Guide to Business ValuationTo view this free IACAM executive guide, please click the blue link above.)

Intangible asset valuation involves many of the same core principles as business valuation. For example, income-producing assets such as customer lists are generally valued using an income approach model. Other intagible assets may involve using a cost approach. This is the case with software, which is typically valued using the cost to reproduce or replace the existing programs deveoped over time. Valuators will work with management to develop the time charges and IT expenses that would be theoretically utilized to develop the same sofware, and these figures often form the foundation of the cost approach to software valuation.  

Executives should also be aware that certain intangibles are not recognized on financial statements. Internally-generated software, for starters, is not allowed to be displayed as an asset on a GAAP-basis balance sheet. However, externally-purchased software obtained in an M&A deal will be shown on a balance sheet. Engineers, attorneys and executives should consult with advisors on the current accounting recognition of their intangible asset portfolio.

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