Valuation of INTANGIBLE ASSETS- PPT.pptx

Valuation of INTANGIBLE ASSETS

1. 1 RRR CHAMBERS Email ID- [email protected]

2. Subject matter of Valuation Any Property (means both Tangible and Intangible) Stocks Shares Debentures Securities Goodwill Any other assets (means any other Tangible and Intangible assets which are not covered above) Net worth of a company Liabilities 2 RRR Chambers - [email protected]

3. Broad forms of Security Interests Forms of security interests Specific property General property Tangible property Future property Intangible property Movable property Immovable property Possessory Interest Non-possessory interest Mortgage Charge or lien Possession Nature of interest Quasi-security interests 3 RRR Chambers - [email protected]

4. Valuation of ‘INTANGIBLE ASSETS’ 4 RRR Chambers - [email protected]

5. Intangibles Valuation 5 Intangibles - Valuation RRR Chambers - [email protected]

6. 6 What is the Need for Valuation ??? RRR Chambers - [email protected]

7. Need for valuation Investors To analyse best investment option To analyse best investment option Financiers to assess the borrowing capacity of a company when arranging funding facilities 7 RRR Chambers - [email protected]

8. LEGAL PROVISIONS 8 RRR Chambers - [email protected]

9. LEGAL PROVISIONS RELATING TO INTANGIBLE ASSETS –INTERNATIONAL 9 RRR Chambers - [email protected]

10. Legal Provisions relating to Intangible Assets- National 10 RRR Chambers - [email protected]

11. COMPANIES ACT 11 RRR Chambers - [email protected]

12. Whether valuation and disclosure of Intangible Assets mandatory or not as per the Companies Act? 12 RRR Chambers - [email protected]

13. 13 RRR Chambers - [email protected]

14. Disclosure of Intangible Assets under Companies Act,2013 14 RRR Chambers - [email protected]

15. 15 RRR Chambers - [email protected]

16. 16 Revised Schedule VI Ministry of Corporate Affairs (MCA) has issued revised Schedule VI Provide new format for preparation and presentation of financial statements As per Revised Schedule VI, the disclosure for fixed assets is to be segregated into: (a) Tangible assets; (b) Intangible assets; (c) Capital work-in-progress; and (d) Intangible assets under development RRR Chambers - [email protected]

17. 17 Companies Act, 1956 Revised Schedule VI RRR Chambers - [email protected]

18. 18 CHAPTER XVII Registered Valuers (Section 247) COMPANIES ACT, 2013 RRR Chambers - [email protected]

19. 19 Notes to Accounts Intangible assets Classification shall be given as: ( a) Goodwill; ( b) Brands /trademarks; ( c) Computer software; ( d) Mastheads and publishing titles; ( e) Mining rights; ( f) Copyrights, and patents and other intellectual property rights, services and operating rights; ( g) Recipes, formulae, models, designs and prototypes; ( h) Licences and franchise; Others (specify nature). RRR Chambers - [email protected]

20. Valuation under Companies Act, 2013 Sec of Companies Act, 2013 Purpose Details Sec 62(1)(c) Issue of new shares Price of such shares should be determined by the valuation report of a Registered Valuer Section 192 (2) Non-cash transactions with Directors The value of the assets has to be calculated by a Registered Valuer Sec 230 (2) & (3) , Sec 232 Compromise, Arrangements, Amalgamations Valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable or a swap ratio report by a Registered Valuer . Sec 236 Purchase of minority shareholding The minority shareholding at a valuation determined by the Registered Valuer . Section 281 (1) (a) and Section 305 (2) (d) Winding up of a company A valuation of assets of the company 20 RRR Chambers - [email protected]

21. Intangible Assets under Companies Act, 2013 Section under Companies Act, 2013 Details Schedule III Separate line item in Balance Sheet under “Non-Current Assets” Schedule II Depreciation/Amortisation of intangible assets – applicability of Accounting standards, 21 RRR Chambers - [email protected]

22. Who will value ??? 22 RRR Chambers - [email protected]

23. Who can be a valuer ? A person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed. Amendment: It shall come into force from the 23'd day of October, 2017. In the Companies Act,2013, in section 247, in sub-section (1), for the words ,,a person having such qualifications and experience and registered as a valuer in such rnanner , on such terms and conditions as may be prescribed", the words "a person having such qualifications and experience, registered as a valuer and being a member of an organisation recognised in such manner, on such terms and conditions as may be prescribed " shall be substituted. 23 RRR Chambers - [email protected]

24. An individual shall have the following qualifications and experience to be eligible for registration under rule 3, namely:- ( a ) post-graduate degree or post-graduate diploma , in the specified discipline, from a University or Institute established, recognized or incorporated by law in India and at least three years of experience in the specified discipline thereafter; or ( b ) a Bachelor's degree or equivalent , in the specified discipline, from a University or Institute established, recognized or incorporated by law in India and at least five years of experience in the specified discipline thereafter; or ( c ) membership of a professional institute established by an Act of Parliament enacted for the purpose of regulation of a profession with at least three years' experience after such membership and having qualification mentioned at clause (a) or (b). 24 Who can be a valuer ? RRR Chambers - [email protected]

25. Securities or Financial Assets Graduate in any stream: (1) Member of the Institute of Chartered Accountants or The Institute of Cost Accountants of India or the Institute of Company Secretaries of India; (2) MBA/PGDBM specialisation in finance or; (3) Post Graduate Degree in Finance Three years of experience in the discipline after completing graduation. Courses as per syllabus specified under rule 5 Any other asset class along with corresponding qualifications and experience in accordance with rule 4 as may be specified by the authority for a registered valuers organization in its conditions of recognition. 25 Who can be a valuer ? RRR Chambers - [email protected]

26. Expert As per Sec.2(38) “ EXPERT ” includes : An Engineer, A Valuer , A Chartered Accountant, A Company Secretary, A Cost Accountant And Any Other Person Who Has The Power Or Authority To Issue A Certificate In Pursuance Of Any Law For The Time Being In Force 26 RRR Chambers - [email protected]

27. 27 RRR Chambers - [email protected]

28. 28 RRR Chambers - [email protected]

29. COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Eligibility for registered valuers Qualifications and experience Valuation Examination Application for certificate of registration Conditions of Registration Conduct of Valuation Temporary surrender Functions of a Valuer Transitional Arrangement Eligibility for registered valuers organizations Application for recognition Conditions of Recognition Cancellation or suspension of certificate of registration or recognition Complaint against a registered valuer or registered valuers organization Procedure to be followed for cancellation or suspension of registration or recognition certificate Valuation Standards Committee to advise on valuation matters Punishment for contravention Punishment for false statement 29 RRR Chambers - [email protected]

30. What is the subject matter of valuation? Who can be a valuer ? Who is having the power to appoint a valuer ? 30 RRR Chambers - [email protected]

31. COMPANIES ACT 2013 PROVISIONS 247.Valuation by Registered Valuers . (1) Where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities under the provision of this Act, it shall be valued by [a person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions  as may be prescribed ] and appointed by the audit committee or in its absence by the Board of Directors of that company. 31 RRR Chambers - [email protected]

32. What are the Instances of Valuation? 32

33. Issue of new shares value (worth) of the business . sale of a business Expansion Amalgamate preference shares or debentures the acquisition jointly by the partners in a partnership firm and it is dissolved, it becomes necessary to value for proper distribution of assets. loan advanced on the security of shares Purchase and sale of shares of private limited/ limited companies and any un quoted shares under stock exchanges. net asset value by an investment company. Dispute resolution cases   intellectual property rights per share value of an Employee Stock Option Plan (ESOP)/ Sweat Equity shares . bank financing or alternative investment . intrinsic value of a business and assess whether it is different from the fair market value of the business. 33 RRR Chambers - [email protected]

34. Requirement of Valuation under various Sections by the registered Valuer 34

35. 35 Sections Covered under the Companies Act, 2013 Purpose of Valuation Chapter-IV-Share Capital and Debentures Section 54 read with Rule 8 For valuation of sweat equity shares Section 62 (1)(c) For valuation of further issuance of shares Chapter-XII-Meetings of Board and its Powers Section 177(4)(vi) For valuation of undertakings or assets of the company. Section 192(2) For valuing of Assets involved in arrangement of Non-cash transactions involving directors Chapter-VX- Compromises, Arrangements and Amalgamations Section 230(2)(c)(v) For valuation of shares, property and all assets, tangible and intangible, movable and immovable of the Company under a scheme of Corporate Debt restructuring. Section 230(3) Under a scheme of compromise /arrangement, along with the notice of creditors/shareholders meeting, a copy of valuation report, if any shall be accompanied. Section 232(2)(d) Copy of the Valuation Report by the expert with regard to valuation, if any would be circulated for meeting of creditors/members. Section 232(3)(h) Where under Merger and Amalgamation of companies, the transferor company is a listed company and the transferee company is an unlisted company, for exit opportunity to the shareholder of transferor company, valuation may be required to be made by the tribunal. Section 236(2) Valuation for Purchase of Minority Shareholding Chapter-XIX- Revival and Rehabilitation of Sick Companies Section 260(2)(C) Valuation in respect of Shares and Assets to arrive at the Reserve Price for the sale of for Company Administrator. ( (a). Omitted by Insolvency and Bankruptcy Code, 2016 Dated 15th Nov, 2016) (b)   The MCA Notification No. F.O. 3453(E) Dated 15th November, 2016, enforcing the related sections of Insolvency and Bankruptcy Code, 2016) Chapter-XX- Winding Up-Part-I- Winding Up by Tribunal Section 281(1)(a) For submission of report by Company Liquidator shall accompany valuation report on the assets held by the company. Chapter-XX- Winding Up-Part-II-Voluntary Winding Up Section 305(2)(d) Report on Assets for declaration of solvency in case of proposal to wind up voluntarily. Section 319(3)(b) Valuing interest of any dissenting member under Power of Company Liquidator to accept shares etc., as consideration for sale of property of the company. ((a).Omitted by Insolvency and Bankruptcy Code, 2016 Dated 15th Nov, 2016) (b)   The MCA Notification No. F.O. 3453(E) Dated 15th November, 2016, enforcing the related sections of Insolvency and Bankruptcy Code, 2016)

36. How does valuation happen under various other Acts? 36

37. 37 Act Particulars Refrerence Insolvency and Bankruptcy Code, 2016 Regulation 35 ( i ) The Code defines liquidation value as “Liquidation value is the estimated realizable value of the assets of the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date.” Regulation 38 ( i ) It mandates that the resolution plan shall identify the liquidation value due to operating creditors and liquidation value due to dissenting financial creditors. Under SEBI(Real Estate Investment Trust) Regulations, 2014 Regulation 2(1) ( zz ) “ Valuer ” means any person who is a "registered valuer " under section 247 of the Companies Act, 2013 and who has/have been appointed by the manager to undertake both financial and technical valuation of the REIT assets. Under SEBI (Infrastructure Investment Trusts) Regulations, 2014 Regulation 2(1) ( zzf ) “ valuer ” means any person38[(s)] who is a "registered valuer " under section 247 of the Companies Act, 2013 and who has/have been appointed by the investment manager to undertake both financial and technical valuation of the InvIT assets. RRR Chambers - [email protected]

38. 38 Act Particulars Refrerence SEBI (Issue Of Capital and Disclosure Requirements) Regulations, 2009 Chapter-VIA- Conditions and manner of providing Exit Opportunity to Dissenting Shareholders under Section 27 of the Companies Act, 2013. Regulation -69E-Exit Offer Price- Pricing of equity shares – Infrequently traded shares. Chapter-VII- Preferential Issue Regulation -73(3) - securities are issued on a preferential basis to promoters, their relatives, associates and related entities for consideration other than cash. Chapter-VII- Preferential Issue Regulation-76A- Pricing of equity shares – Infrequently traded shares. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 Chapter-II-Substantial Acquisition of Shares, Voting Rights or Control. Regulation 8(16)-Offer Price-In case infrequently traded shares, the SEBI may ask valuation of shares. Chapter-II-Substantial Acquisition of Shares, Voting Rights or Control. Regulation 9(5(c)) - Mode of Payment- Where listed securities are offered as consideration, the value of such securities and the ratio of exchange of shares. RRR Chambers - [email protected]

39. 39 Regional Stock Exchange listed Companies/ Listed companies moved to Dissemination Board of NSE/ BSE SEBI Circular dated 10 th October 2016,No. SEBI/HO/MRD/DSA/CIR /P/ 2016/110 Exit opportunity to the shareholders of Exclusively Listed Companies. Mergers, Amalgamations, Demerger, Reduction of Capital etc., SEBI Notification No. CIR/CFD/CMD/16/2015, dated 30th November, 2015 Fairness Opinion is required from the Category-1 Registered Merchant Banker based on the valuation done by an Independent Chartered Accountant. RBI/FEMA Regulations Under FEMA Regulations (Foreign Direct Investments), for Issue /Transfer of Equity shares / Compulsory convertible instruments between Resident and Non Resident Also for Investment/Acquisition of Companies outside India (ODI), valuation is required- Inbound/ outbound Investments For Investment more than 5 mn USD, then Valuation of Category-1 Merchant Banker registered with SEBI. For Investment 5 mn USD or less, then Valuation from practicing Chartered Accountant in practice with ten years of experience. Income Tax Act, 1961 Section -17 (2)(vi) read with Rule 3(8)( i ) of Income Tax Rules, 1962 Perquisite is taxed in the hands of Employees which is computed as the difference between the Fair Market Value of the shares on the date of exercise and the exercise price. The employer is required to withhold tax at source in respect of such perquisite: In case of Unlisted Companies, Valuation to be done by a SEBI Registered (Category-I) Merchant Banker. For Listed companies, Average of Opening and Closing Market Price on Exercise date is prescribed. Section-56- Income Tax on deemed gifts Section 56 (2)(vii) & Section 56 (2)(vii)(a) –Valuation done by Valuation from practicing Chartered Accountant in practice Section 56 (2)(vii)- Valuation to be done by a SEBI Registered (Category-I) Merchant Banker. Section 92C-Transfer Pricing To Meet the regulatory guidelines.

40. What are the Do’s and Do not’s of Valuer ? 40 RRR Chambers - [email protected]

41. Conditions Precedents and Subsequents The valuer appointed under sub-section (1) shall,— (a) make an impartial, true and fair valuation of any assets which may be required to be valued; (b) exercise due diligence while performing the functions as valuer ; (c) make the valuation in accordance with such rules as may be prescribed; and (d) not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time [during a period of three years prior to his appointment as valuer or three years after the valuation of assets was conducted by him.] 41 RRR Chambers - [email protected]

42. Do’s and Do not’s DO Make an impartial, true and fair valuation Exercise due diligence DO NOT Undertake valuation of any assets in which he has any interest 42 RRR Chambers - [email protected]

43. How to present Valuation Report? 43

44. Valuation Report As per, Companies_( Registered_Valuers_and_Valuation )_Rules_2017. (3) The valuer shall, in his report, state the following:- ( a ) background information of the asset being valued; ( b ) purpose of valuation and appointing authority ; (c ) identity of the valuer and any other experts involved in the valuation; ( d ) disclosure of valuer interest or conflict, if any; ( e )date of appointment , valuation date and date of report ; ( f ) inspections and/or investigations undertaken; ( g )nature and sources of the information used or relied upon; ( h ) procedures adopted in carrying out the valuation and valuation standards followed; ( i ) restrictions on use of the report, if any; ( j ) major factors that were taken into account during the valuation; ( k ) conclusion; and ( l ) caveats, limitations and disclaimers to the extent they explain or elucidate the limitations faced by valuer , which shall not be for the purpose of limiting his responsibility for the valuation report. 44 RRR Chambers - [email protected]

45. Valuer shall consider the following points for valuation Report (a) Nature and History of the business (b) Economic outlook (c) Book value of the (d) Earning capacity of the company; (e) Dividend –paying capacity; (f) Goodwill or other intangible value; (g) Sales of the stock and the size of the block of stock to be valued; (h) Market prices of stock ( i ) Contingent liabilities Points to be considered in valuation report 45 RRR Chambers - [email protected]

46. CASE STUDIES 46 RRR Chambers - [email protected]

47. Variation in valuation from one intangible asset with other intangible assets Basis of valuation depends on time, cost and circumstances. Impact of amendments in the regulations for disclosures affecting the financial position of the company. Various kinds of intangible assets are not taken into account in disclosure of financial statements. Gaps in the Indian and International accounting standards and reporting systems. Failure to understand the enterprise's core value and the special characteristics of its intangible assets; 47 Valuation - Pitfalls RRR Chambers - [email protected]

48. PITFALLS – CASE STUDY Failure to understand the enterprise's core value and the special characteristics of its intangible assets; 48 Pitfalls Cases [email protected] RRR Chambers - [email protected]

49. 49 Case Study With the loans to Kingfisher Airlines ( KFA) turning into a non-performing asset (NPA), the Reserve Bank of India (RBI) has asked banks not to treat “Kingfisher brand”, an intangible asset, as collateral RBI’s instruction to banks is the principle of lending to and on the back of all intangible and knowledge assets. By permitting banks to finance investments in an intangible asset such as spectrum and seeking bank’s recourse to it in the event of a default, RBI had moved forward on intangible asset financing. RRR Chambers - [email protected]

50. 50 RRR Chambers - [email protected]

51. Active part in drafting rules Registered Valuer Organization Clarifications Training Courses Exams 51 RRR Chambers - [email protected]

52. 52 RRR Chambers - [email protected]

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54. THANK YOU 54 RRR Chambers - [email protected]