Goodwill & Intangible Asset Valuation Flashcards

Under ASC 805, which of the following best describes 'goodwill' in a business combination?

Answer: The excess of the acquisition price over the fair value of identifiable net assets acquired

Under ASC 805, goodwill is the excess of consideration transferred over the fair value of identifiable net assets (assets minus liabilities) acquired in a business combination.

The Multi-Period Excess Earnings Method (MPEEM) is most commonly used to value which type of intangible asset?

Answer: Customer relationships and developed technology

MPEEM is most commonly applied to primary intangible assets such as customer relationships and developed technology, isolating their contributory asset charges to derive residual earnings.

Which relief-from-royalty method assumption is most critical when valuing a trade name?

Answer: The appropriate royalty rate that a willing licensor and licensee would negotiate

The relief-from-royalty method derives value by estimating the royalties saved because the company owns, rather than licenses, the trade name; the royalty rate selection is therefore the most critical assumption.

Which of the following is NOT a recognized category of intangible assets under ASC 805?

Answer: Entity-related goodwill

ASC 805 categorizes intangibles as marketing-related, customer-related, artistic-related, contract-based, and technology-based; 'entity-related goodwill' is not a separate category — goodwill is residual, not a classified intangible.

Contributory asset charges (CACs) in the MPEEM represent:

Answer: Returns on and of all supporting assets used to generate the earnings attributable to the subject intangible

CACs represent the required returns on (and, for wasting assets, of) all other assets that contribute to generating the cash flows from which the subject intangible's value is isolated.

Under ASC 350, goodwill impairment testing for public companies after the ASU 2017-04 simplification requires:

Answer: A one-step test comparing the carrying amount of a reporting unit to its fair value

ASU 2017-04 eliminated Step 2; companies now compare the reporting unit's carrying amount to its fair value — if carrying amount exceeds fair value, the excess is the impairment loss.

A 'with-and-without' method is most appropriate for valuing which type of intangible asset?

Answer: Non-compete agreements

The with-and-without method compares enterprise cash flows with and without the intangible in place and is most commonly applied to non-compete agreements, which restrict a specific party's competitive activity.