Presentation on theme: "Key Intangible value drivers and intangible assets monitor Presented By: Sandeep Kaushik 82040 Akshaya Bir Bikram Singh 82002 Nitin Pandey 82029."— Presentation transcript:
Key Intangible value drivers and intangible assets monitor Presented By: Sandeep Kaushik 82040 Akshaya Bir Bikram Singh 82002 Nitin Pandey 82029
Intangible Assets Identifiable non monetary assets, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. In short they are fixed assets but without a physical existence. The objective of Accounting standard 26 (Used for evaluating Intangible assets) is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Accounting Standard.
Accounting Standard 26 (issued 2002) ICAI issued AS- 26, ‘Intangible Assets’ which was mandated for the accounting periods commencing on or after 1 st april 2003. Earlier it was dealt with by AS 10 ‘Accounting for fixed assets’ If another Accounting Standard deals with a specific type of intangible asset, an enterprise applies that Accounting Standard instead of this Standard.
Classification of Intangible Assets Goodwill Trademarks and brand names Copyrights, patents and other industrial property rights, service and operating rights Know-how: designs and prototypes, new processes or systems, recipes, formulae, models Licenses and franchises Computer software Motion picture films Mast heads and publishing titles
Why are intangible assets so important? Strong brands influence customers’ decision-making processes, as well as ensuring that premium prices can be charged. This is particularly true in many consumer businesses. At their best, they represent a guarantee of quality and sometimes, in the case of luxury brands, consumers even derive social status from the brand. Intangible assets, therefore, provide potential competitive advantage, but as assets they clearly demand specialist management and communication skills.
So what should management be doing differently? (1) Develop key performance indicators to monitor the performance of the intangible; (2) Conduct a yearly assessment of the brand value. (3) Create some metrics system to keep a tag on the intangible assets.
Value drivers include the following: Trading history: margin and sales trends. Competitive positioning relative to other brands. Role within value chain. Level and effectiveness of marketing investment. Existing market footprint.
Treatment of Intangible Assets When company acquire an intangible asset such as goodwill, patents, copyright, etc. It is shown on the asset side of the Balance Sheet of the acquiring company and also it is capitalise from the profit in the P&L A/c.
Main challenges with regard to the valuation of intangible assets Appropriate identification phase within the purchase price allocation process requires profound industry knowledge Understanding of the commercial relevance Selection of adequate valuation methods Determination of appropriate valuation parameters
Percentage allocation of purchase price to intangible assets by industry (Median) Automotive 23.1% Building & Construction 6.0% Chemicals 33.0% Computer & Semiconductors 40.0% Consumer Products & Services 57.0% Energy & Power Generation 7.3% Entertainment & Media 43.5% Financial Services 22.5% Industrial Products 31.5% Internet & E-Commerce 34.8% Life Science & Healthcare 45.1% Software 23.8% Telecommunications 29.3% Transportation & Logistics 30.0%
Definitions An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. An asset is a resource: (a) controlled by an enterprise as a result of past events; and (b) from which future economic benefits are expected to flow to the enterprise. Monetary assets are money held and assets to be received in fixed or determinable amounts of money. Non-monetary assets are assets other than monetary assets. Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life. Residual value is the amount which an enterprise expects to obtain for an asset at the end of its useful life after deducting the expected costs of disposal. Fair value of an asset is the amount for which that asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. An active market is a market where all the following conditions exist: (a) the items traded within the market are homogeneous; (b) willing buyers and sellers can normally be found at any time; and (c) prices are available to the public.
Some Examples Showing how intangible assets can enhance the turnover, market share, shareholder value and most importantly the brand valuation.
Example of a Goodwill Goodwill is usually described as the difference between the sales price of a company and the value of its tangible assets. Goodwill is based on the company's reputation and customer loyalty.
Case Tata Motors has witnessed an growth brand value in past two years owing to the acquisition of the two prestigious British luxury brands Jaguar and Landrover. Two months before the acquisition of JLR, Tata Motor’s market capitalisation was Rs. 24,000 crores which plunged to only Rs 6,500 crores just after the acquisition The current market capitalisation of Tata Motors after two years of acquisition stands at Rs. 71,500 crores which is a ten-fold increase from the all time low. It has also made Tata Motors’s brand value surpass that of Reliance Industries. Tata Motors now stands as India’s Most Valuable Brand amongst the survey with a valuation of $8.5 billion. It was $3.1 billion in 2008-09