Briefly describe the methods which are used for valuation of intangible assets.

There are various methods for valuation of intangible assets such as human resources, technical know-how, patents, copyright, brands etc. The commonly used methods are: Historical cost method Replacement cost method Present value of future cash flows method The Lev and Schwartz method Under the historical cost method, cost incurred in recruitment, training and development, cost of retaining, cost of attrition, etc. of human resources is considered in calculation. For other intangible assets, the cost incurred in bringing the intangible asset to its present state is taken. Under the replacement cost method, the value of intangible asset is calculated based on the current cost which will need to be incurred to create the intangible asset. This method is more reasonable in the sense that it takes into consideration all the changes in the cost components. Under the present value method, the future cash flows from the economic benefits of the intangible asset is estimated and discounted at the rate of cost of capital to arrive at the present value which is taken as the value of intangible asset. The Lev and Schwartz method is used for human resources accounting. As per this model, the value of human capital of a person who is 'y' years old is the present value of his future earnings from employment. The following formula is used to calculate the present value: Σ(Vy) = ∑Py (t + 1) I(t) / (1+r) t-y Where: Σ(Vy) = expected value of a y year old person's human capital t = the person's retirement age Py(t) = probability of the person leaving the organisation I(t) = expected earnings of the person in period r = discount rate