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Revenue creation of a company simply does not arise by managing tangible assets. Instead, the revenue is completely generated when intangible assets created in combination with both human resources and physical resources arises on a basis of the tangible assets.

Real assets and financial assets are recently considered as goods that create an average return on investment (ROI), while growth of wealth is dominated by intangible assets. Due to the definition and economic characteristics of intangible assets, however, intangible assets should be valued different from corporate accounting. In other words, general corporate accounting only concentrates on financial reporting on performances which were already made so that it can hardly reflect future. Therefore appraisal stands out these days as it can reflect the future as well.

Corporate assets category usually composes of tangible assets, financial assets, intangible assets and etc. Intangible asset represents future economic value without real or financial assets (stocks and private bond)
Intangible assets have the following general characteristics such as non-rivalry(non-scarcity), scalability, network effects, partial excludability, spillovers, inherent risk and non-tradability.
Non-rivalry (non-scarcity) and scalability
Non-rivalry is the ability to use intangibles in simultaneous and repetitive applications without diminishing their usefulness and scalability is a potential for creating value by non-rivalry. Non-rivalry of real assets contrasts with scalability. For instance, when output doubles, huge investment on factory facilities are needed in general. Contrarily, when sales of medicine double, there is not change in research and development areas.
Network Effects
When a product is first introduced, its value to a potential customer depends on how many people are also using the same product. The effects commonly arise in the adaptation of technologies such as computer, software, telecommunication, home appliances and drug market.
Partial excludability and Spillovers
Intangible assets are different from real assets and financial assets since owners of the intangible assets are less able to excluded competitors from benefiting from his or her intangible resources. Therefore it is more susceptible to spillovers.
Inherent Risk
Intangible assets such as research and development, human capital, organizational capital etc. are the major sources to accomplish innovation or a creative process. Unlike other assets, however, the creative process has high inherent risk such as the loss of the total money invested.
Organized intangible market is non-exist so that a valuation of intangible assets have no comparables. Therefore, this arises problems in managing intangible assets such as mortgages etc.
Category of intangible assets based on general accounting standards is as follow:
Korea International U.S.A
Goodwill Goodwill Goodwill
Patent/Utility model/ Design/Trademark - Patent /Trademark
Mining rights/fishing rights/ land use rights - Copyright
Organization cost Organization cost -
Development cost R&D -
Other intangible assets Advertisement Expense/ Training expense Franchise/Name of a company
Non compete contract/ Client list
In current accounting practices, however, when reporting financial activities, many parts of intangible assets are excluded. Because of this, the market value and book value don’t match. Therefore, the valuation method that refers to general accounting standards and reflects the economic characteristics of intangible asset should be taken into account.
In general, the value of intangible assets can be estimated by applying various valuation approaches such as the cost approach, market approach, real option approach, income approach etc. These are the details.
Cost Approach
Fair market value of intangible asset = Replacement cost of intangible asset - Physical, functional, economic depreciation expense
Market Approach
Fair market value of intangible asset can be estimated through this process: collect comparables of Guideline Intangible Asset; compare the comparables with the subject intangible asset; adjust price-making factors of the subject intangible asset.
Income Approach
Income approach compromises Royalty free method, Profit spilt method , Excess earning capitalization method, enterprise value residual method, purchase price residual method etc. and in the case of capitalizing expected future profit, Direct Capitalization Method, Discounted Cash Flow etc. are applied to estimate the subject’s value.