Explain the methods of Valuation of Intangible Assets under Income Approach.

Income Based Approach: Future earnings which are attributable to the Intangible asset are forecasted over its useful life and discounted to its present value. This approach is appropriate in case of technology, customer related intangibles, trademarks, operating licenses and non-competition agreements. METHODS OF VALUATION UNDER INCOME APPROACH: Excess Earnings Method: This method removes the earnings attributable to net tangible assets from the total earnings of the Company. The balance earnings represent earnings on account of intangible assets. The same is divided by an appropriate capitalization rate to extrapolate the combined value of Goodwill and other intangible assets. Relief from Royalty Method: This method is based on the assumption that a brand owner can license the brand to a hypothetical operating company. The operating company in turn would pay royalty at an expressed rate of sales. The present value of all future cash inflows from royalty will be the value of the Brand. Multi Period Excess Earnings Method: This method first calculates the future cash inflows from the business in which the intangible asset is engaged. From these cash flows, cash flows attributable to tangible assets and other contributory assets are deducted to zero in on cash flows attributable purely for the Asset in question. They are discounted to present value to find out the value of the Intangible asset. A variant of the Multi Period Excess Earnings Method is the Distributor method which attempts to allocate earnings attributable to customer relationships based on profit margins earned by Distributors. Greenfield Method: The assumption in this model is that the subject to asset is the only asset owned by business as of the valuation date. Then assumptions are made regarding start-up costs and further capital investment required to utilize the subject asset. These assumptions are made with a view to developing an operation comparable to one in which the subject asset is actually utilized. In this method it forecasts the cash flows attributable to the subject asset by subtracting necessary investments. The projected cash flows are then discounted to present value to determine income based value of the Intangible assets.