Cost Approach (Valuation)
Definition
A valuation methodology that estimates the value of an asset based on the cost to reproduce or replace it, adjusted for obsolescence. The cost approach is frequently used to value internally developed intangible assets such as proprietary software and databases where market comparables are unavailable.
Related Terms
Related FAQ
Can artificial intelligence systems be valued as intangible assets?
Yes. AI systems — including trained models, proprietary algorithms, and curated datasets — can be recognised and valued as intangible assets under both IFRS and US GAAP when they meet the standard recognition criteria.
Read full answer →How do you value machine learning models in an acquisition?
Machine learning models are valued in acquisitions using the Cost Approach (reproduction cost), Income Approach (incremental cash flows), or Market Approach, considering the model's accuracy, data moat, and remaining useful life.
Read full answer →How do you value technology assets in a business acquisition?
Technology assets are valued using the Relief from Royalty method (for licensed technology) or the Cost Approach (for proprietary software), considering obsolescence risk, remaining useful life, and competitive differentiation.
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