Value of valuable rights in financial statements

Matěj Merxbauer

Valuable rights ('trademarks') are specific representatives of a group of intangible fixed assets whose useful life ought to be longer than one year and at the same time, the cost of acquiring exceeds the limit set by the entity.

Trademarks may be valued at the level of cost of acquiring, current replacement cost, or at the level of its own cost. The correctness of the chosen length of the economic life is the decisive factor of the resulting valuation in the books of the entity. Being a representative of the entity's assets, the precautionary principle must be respected. The attention of users of data from the financial statements leads towards the value of the assets.

As the companies are trending to conduct transformations of the trading companies more and more frequently, the issue of trademark valuation is deepening greatly. Trademarks are a frequent part of a revalued asset and a potential object for deliberately modifying the value of an asset vicariously the equity.

Valuation of the value of these assets in an expert opinion is usually based on several different valuation methods. The most common method for operating corporations is the yield valuation method, therefore it is the method that usually ensures the highest valuation value. At the time of transformation of the trading company, there is a significant risk that the owner of the entity will be interested in achieving the highest value of assets vicariously the equity. There are multiple reasons for this tendency, a typical example being the focus on potentially paying higher dividends or profit shares, future tendency to conduct buy out and so on.

The fundamental basis for the valuation is a sophisticated financial plan. The principle is based on historical data and includes the expectations of the management or owners of the corporation or part of it. The completeness and correctness of the procedures for drawing up this financing plan are conditional on the correctness of the valued value of the trademark after the revaluation resulting from the conversion has been posted.

In reporting the correct value of the revalued trademark not only at the reference date but also at the balance sheet date thereafter, it is critical to pay attention to the conditions that affected the value of the initial valuation. It also seems essential that the company understands the valuation method selected by the external evaluator and that it continually updates the primary financial plan data of that valuation to reflect the achievement. If these assumptions are met, there is no risk that the management of the entity does not dispose of sufficient information about whether and, if so, how the actual situation develops compared to the planned situation in the initial financial plan and what mediated impact these conditions have on the valuation of the trademark in the books.

In case of a negative development compared to the planned situation, it is necessary to respect the precautionary principle and to use the appropriate value correction tools in financial accounting.

In case of any further questions, do not hesitate to contact me.


Matěj Merxbauer
Junior Audit Manager