Appraisers and accountants who opted for indefiniteness in a trademark’s life when doing the original valuation seem to maintain this preference permanently, according to new research reported in BVWire. “This approach is, however, not fully in line with ASC 350 and IAS 38, which state ‘the term indefinite does not mean (the same as) infinite.’ At some point in time, an end of the trademark’s life should be foreseeable,” say the authors of a new article that discusses the new research.
Once indefinite—always indefinite: The authors, Christof Binder (Capstone Branding GmbH) and Robert Morrison (Morrison Valuation & Forensic Services LLC), analyzed 100 trademarks (or trademark portfolios) that were valued and accounted for in 2004 with an indefinite life. The sample was taken from the MARKABLES database of trademark valuations. They traced the reporting of these trademarks from 2004 until the 2013/2014 reporting season. “Only in very few cases the option of shifting from indefiniteness to finiteness was chosen,” say the authors.
The standard-setters introduced the concept of indefinite-lived intangibles in 2001, but they certainly did not “contemplate the creation of an asset category that would sit on the balance sheet forever,” say the authors. But that’s what appears to be happening. Appraisers and accountants continue to prefer annual impairment testing and irregular impairments over a determination of RUL and regular amortization.
The article, Indefinite Is Not Infinite—Solving a Dichotomy in Trademark Valuation, discusses the serious effects that the assumption of indefiniteness can have on valuation and accounting. It also suggests some guidelines and tools for how to analyze the life cycle of a trademark and how to estimate its RUL. The article will appear in the May issue of Business Valuation Update (subscription required).