What factors should be considered when estimating remaining economic life of intangible assets in Vietnam from July 1, 2024?

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What factors should be considered when estimating remaining economic life of intangible assets in Vietnam from July 1, 2024?

Pursuant to Clause 2, Article 5 of the Vietnamese Valuation Standards on the Valuation of Intangible Assets issued together with Circular 37/2024/TT-BTC, the factors to consider when estimating remaining economic life are as follows:

- The period of legal protection of the intangible asset as intellectual property;

- Provisions in civil contracts under the law associated with the intangible asset to be appraised;

- Decisions from the court or competent authority relating to the intangible asset to be appraised;

- Economic factors such as the scale and prospects of the market for products and services associated with the intangible asset to be appraised;

- The development of science and technology, the emergence of similar or more effective intangible assets leading to functional obsolescence or economic obsolescence of the intangible asset to be appraised; other relevant scientific and technical factors;

- Statistical and analytical results (if any) related to the intangible asset to be appraised;

- Other factors related to the estimation of the economic life of the intangible asset to be appraised.

Accordingly, five factors need to be considered when estimating remaining economic life of intangible assets.

Note: The economic life of an intangible asset is influenced by legal, economic, technological, functional, and economic factors such as the scale and prospects of the market, the development of science and technology, the uniqueness and differentiation of the intangible asset, and competition from similar intangible assets. The economic life can be either a finite or infinite period.

What factors should be considered when estimating remaining economic life of intangible assets in Vietnam from July 1, 2024? (Internet image)

What is the required information for applying royalties method in Vietnam?

Pursuant to Article 11 of the Vietnamese Valuation Standards on the Valuation of Intangible Assets issued together with Circular 37/2024/TT-BTC, the information needed to apply the royalties method is as follows:

- The royalty amount or royalty rate for the intangible asset, determined through:

+ The royalty rate of comparable or similar intangible assets that have market transactions;

+ The profit split in a hypothetical transaction between a willing licensor of the intangible asset to be appraised and a willing licensee of the intangible asset to be appraised in an independent, objective transaction.

- Transaction information of similar assets regarding the rights protected by law, information on franchise agreements for the use of the intangible asset such as royalty fees, costs required to maintain it (e.g., advertising, product upgrades, quality control), usage date, and expiration date of the franchise agreement.

- Other information relevant to the application of the royalties method for intangible asset valuation.

What are details of royalties method in Vietnam?

Pursuant to Article 10 of the Vietnamese Valuation Standards on the Valuation of Intangible Assets issued together with Circular 37/2024/TT-BTC, the royalties method includes the following contents:

1. According to the royalties method, the value of an intangible asset is calculated based on the present value of the royalty stream the entity would receive when permitting the use of the intangible asset.

2. The royalties method assumes that an entity or individual without ownership of the intangible asset must pay a royalty to use it. Therefore, the method calculates the value of the intangible asset by computing the saved royalties that the entity or individual would pay if they owned the intangible asset.

3. The royalties method is applied by discounting the future royalty stream that has been adjusted for tax (if any) to its present value.

4. The calculation of the royalty stream, taxes, maintenance costs, and other supporting expenses must be consistent. Specifically, if the entity or individual owning the intangible asset is responsible for maintenance costs (e.g., advertising or research and development costs for maintaining and developing), then the royalty payment and the cash flow for using the intangible asset should also account for these costs.

Conversely, if maintenance costs are not included in the royalty payment, then these costs should be excluded from the cash flow for using the intangible asset.