Intangibles Fall into Four Groups

• Spillover knowledge that creates new products and enhances valuepatents, drugs, chemicals, software, etc. (i.e., Merck, Cisco, Microsoft, IBM).
• Human Resources.
• Brands/Franchises.
• Structural capital, such as processes, and systems of doing things. This is the fastest-growing group of intangibles.

Valuation of Intangibles is Difficult

• Companies have less control over intangibles, which causes higher risk.
• If a company fails, its intangible assets cant be sold off easily like tangible assets.
• There are no markets for intangibles, and a market is what provides a value.

New Approaches to Intangible Asset Valuation

• Ranking by industry averages.
• Industries with a low amount of knowledge capital: airlines and cosmetics.
• Medium amount of knowledge capital: chemicals, beverages, and merchandise.
• High level of knowledge capital: electronics, software, entertainment, computers, telecom, and pharmaceuticals industries.
• New ways to value the totality of intangibles.
• A production function approach in which an outcome (performance of a company) is related to the major assets contributing to the outcome.
• Identification and valuation of the components of a companys intellectual capital, breaking up what generally falls under gross goodwill into specific parts, i.e., research and development, assembled workforce, customer relationships, etc.
• Market value to comprehensive value a new measure which adds an estimate of a company's knowledge capital to its book value.

Extract from: http://www.nyssa.org/abstract/acct_intangibles.html  presentation at NYSSA, January 11, 2001, by Baruch Lev, Philip Bardes Professor of Accounting and Finance, Stern School of Business, New York University; Joshua Livant, former Chairman, Accounting Department and Professor of Accounting, Stern School of Business, New York University; and Ed Trott, Member, Financial Accounting Standards Board. Presented by NYSSAs Committee for Improved Corporate Reporting