Measuring Intellectual Property
Intellectual property (IP) plays a critical role in a company’s value. But how do we accurately measure it for financial reporting?
International Financial Reporting Standards (IFRS) provide a framework with two key measurement models for IP under IAS 38.
- Cost Less Amortization
- This model reflects the historical cost of the IP, minus any accumulated amortization expense. Amortization gradually reduces the IP’s value on the balance sheet over its estimated useful life.
- Fair Value
- This model reflects the current market value of the IP, typically used for IP acquired through a business combination. Determining fair value often requires professional valuation expertise, as it considers the price a willing buyer would pay in an arm’s-length transaction.
Choosing the right measurement model depends on the specific purpose of valuation. Understanding these options ensures accurate and transparent reporting of your company’s valuable IP assets.
