American Accounting Association 2006 Midwest Region Meeting March 30 – April 1 Chicago, Illinois

Saturday, April 1, 11:00 a.m. to 12:50 p.m.
Concurrent session 6B – Disclosure and Intangible Assets (Financial Accounting and Reporting)

Title: A New Method to Estimate the Value of Intangible Assets

Meng-Yuh Cheng Feng Chia University	Gene C. Lai Washington State University
Tzy-Yih Hsiao Feng Chia University	Jer-Yan Lin Feng Chia University

ABSTRACT: This paper proposes a new method that can better estimate intangible assets. We estimate tangible assets by subtracting current value of equity rather than book value of equity from the market value of equity. This is an improvement of Edvinsson and Malone (1997). To estimate the current value of equity, we directly estimate the current value of each tangible asset through revaluation. We find that the estimates of intangible assets obtained by our approach are statistically lower than those of Edvinsson and Malone (1997). In addition, out estimates of inventory (INV) and property, plant, and equipment (PP&E) are statistically lower than those of Edvinsson and Malone (1997).

The main contribution of this paper is that our method produces a more accurate value of intangible assets than other methods. The reasons are as follows. First, we use a more appropriate definition to estimate tangible assets. Second, the estimated value of intangible assets is not influenced by the characteristics of other companies because we revalue each asset individually for each company rather than use the cross-sectional approach. The fact that we revalue each asset individually for each company is another contribution because no study has performed such an analysis. Finally, our estimates of intangible assets for different companies are more comparable than other estimates, because we revalue tangible assets based on revaluation guide of FASB Statement No.141.

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