Intellectual Property refers to creations of the mind, items such as music, words, phrases and designs which do not exist as physical tangible objects but rather as ideas. The term intellectual property came into use in the 19th century. The first laws to deal with intellectual rights, were the Statute of Anne in 1710 and the Statute Of Monopolies 1623, which were the first laws dealing with copyright and patent law. Although Intellectual property deals with intangible objects, it is nevertheless a very large part of business, especially in the United States. It is estimated, that roughly two-thirds of the value of large business in the United States can be traced to intangible assets such as intellectual property.

Cost Based Approach

This approach is based upon on the principle of substitution, i.e., value of an asset is estimated on the basis of cost to construct a similar asset at current prices. The assumption underlying this approach is that the cost to purchase or develop new property is commensurate with economic value of the service that the property can provide during life. It considers the cost of the inputs spent on making particular intellectual property is equivalent to the value derived from the same. If the creation is not useful then also it has value because certain amount of inputs had been spent on it which carries value.

Methods for valuation under this approach:
1. Historical cost trending or Replacement Cost Method
2. Reproduction or Recreation Cost Method

Limitations
1. Under this method the value of IP is not the real value, as it does not does not directly consider the amount of the economic benefits that can not be achieved nor the time period over which they might continue.
2. It is difficult to Determine all historical development costs
3. This approach consider cost equivalent to value which can not be true.