Valuation of intellectual property and intangible assets

M.Comm.Intangible assets are increasingly becoming the critical determinant of value creation and future profitability of most businesses. There is a clear distinction between the accounting treatment of physical assets and are reported on the firm’s balance sheets, but intangible assets are by large written off in the income statement, along with regular expenses such as wages, rents and interest. This distorted treatment of intangibles in an accounting sense, has dire consequences for managers, investors and policymakers relying on financial information, thus giving an extremely limited view of a company’s potential for value creation and are virtually worthless as a basis for assessing the value of intangible assets as a whole. This paper is limited to the valuation of intellectual property and intangible assets not reflected on the balance sheet and is primarily aimed at researching, exploring and identifying various intangible asset valuation techniques used to make investment decisions; the advantages and disadvantages of each valuation method so identified; identifying which one or more of the valuation methods identified is the most appropriate measure to valuate intangible assets; identifying the accuracy of the most appropriate valuation method selected as compared with the other methods. The problems posed by intangible assets appear to be based on two levels. The first is the difficulty to identify, collect and analyse data regarding intangible assets. The second overlapping level is the lack of external financial reporting on intangibles. The problem herein manifests itself in the lack of recognition of the current accounting principles, thus resulting in intangible assets not being systematically reported in financial statements leading to a lopsided view of the assets employed by a company to generate revenues