Goodwill & Intangible Asset Valuation Flashcards
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Read the first 7 Goodwill & Intangible Asset Valuation flashcards as text
Which of the following best defines 'assembled workforce' in the context of purchase price allocation?
Answer: A contributory asset used in the MPEEM but not separately recognized under ASC 805
Under ASC 805, assembled workforce does not meet the separability or contractual-legal criterion for separate recognition and is therefore treated as a contributory asset in valuation models, not a separately recognized intangible.
The 'greenfield method' is most often used to value which category of intangible assets?
Answer: Licenses and operating permits with long remaining terms
The greenfield method models the hypothetical cash flows required to replicate a business from scratch without the subject intangible (e.g., a license or permit), thereby isolating the value of that intangible.
When estimating the useful life of a customer relationship intangible, which analytical approach is most commonly used?
Answer: Historical customer attrition or churn rate analysis
Analysts typically use historical customer attrition (churn) data to construct a survival curve, which drives the economic useful life estimate for customer relationship intangibles.
Under IRC Section 197, which of the following intangibles must be amortized over 15 years for tax purposes?
Answer: Goodwill and going-concern value acquired in an asset acquisition
IRC Section 197 requires goodwill and going-concern value (along with most other acquired intangibles) in an asset purchase to be amortized straight-line over 15 years regardless of their economic life.
Which metric is most commonly used to benchmark royalty rates when applying the relief-from-royalty method to technology intangibles?
Answer: Rates observed in arm's-length licensing transactions for similar technologies
Market-observable arm's-length royalty rates from comparable licensing agreements (often sourced from databases such as RoyaltySource or ktMINE) provide the primary benchmark for selecting royalty rates.
The 'distributor method' is used in purchase price allocation primarily to value:
Answer: Customer relationships when the entity acts as a distributor of third-party products
The distributor method values customer relationships for entities acting as distributors by using profit margins typical of distribution businesses as the starting point, rather than entity-level margins.
Which of the following is a key difference between personal goodwill and enterprise (entity) goodwill in a business valuation?
Answer: Enterprise goodwill transfers with the business, whereas personal goodwill is inseparable from an individual
Enterprise goodwill is attached to the business entity and transfers upon sale, while personal goodwill is attributable to a specific individual and does not transfer with the business.