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Valuation of Intellectual Property: Approaches

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Valuation of Intellectual Property: Approaches

We have moved into an information age characterized by increasing competition and shorter product life cycles; companies are more dependent on their intellectual properties (IP), as it has being recognized as a Valuable Business Asset. The Value of IP is much different & Valuation is much difficult than the value of any other assets. IP is creation of Human mind but to know the value or to trade that property we have to “value” them. The three main approaches are Market Approach, Income Approach & Cost Approach.

Introduction
Business enterprise is comprised of Working Capital, Fixed Assets, Intangible Assets and Intellectual Property. The increasing challenges of corporate world everyone wants to earn competitive advantages over others resulting into more dependence on Intellectual Property .

Intangible assets

Working Business Fixed Capital Enterprise Assets

Intellectual Property

According to economic theory, the value of an asset is best determined by the market, in the form of a transaction between two unrelated entities dealing at arm’s length. Unfortunately, intangible assets and IP that will eventually support products seldom benefit from open market conditions, either due to novelty or secrecy factors. In consideration of the growing investments required to develop and market products, there is a growing need for assessing the economic value of such IP as early as possible in the product development cycle.

Value assessment is not an accounting operation but rather an attempt to reconcile information pertaining to a given IP or business project, such as development costs, expectation of income, comparative advantages and market data, for the purpose of making better strategic decisions.

There are three main approaches used for...

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