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Assalam walaikum. Peace be upon you. Sir, I am confused whether we should include Goodwill and other intangible assets such as patents in asset based valuation of a company. There is a short example in BBP that does not include Goodwill in valuation. But, when I checked the solution for the Q Stanzial, the examiner has included Patents and Goodwill in the valuation. Thank you.
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Hello Babarali47,
I think you should not include the value of intangible assets when using the net asset valuation method.
That is why in all valuation methods,the net asset method gives the least amount of valuation value because it ignores the value of intangible assets.The answer to Stanzial has included patents, because the question actually gave a value for the patents.
Ideally the asset value should include the value of all the assets if we know it.
However, goodwill will normally be excluded because it is normally impossible to know a value for it. The answer to Stanzial does not include goodwill in the asset valuation.
Thank you for your input sir, really appreciated :). I checked the answer again. In the Kaplan Exam Kit, the answer does include goodwill. Without the goodwill, the value of the company is $15,096. But, in Kaplan, its $15,266 after adding $170 for goodwill. Perhaps a mistake or an unstated assumption?
Sorry – I must have been too sleepy last night 🙁
Because that goodwill appears on the Balance Sheet, it must be purchased goodwill and although there may be problems over its valuation, it is sensible to bring it in. It is non-purchased (or self generated) goodwill that we would normally not include.
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