Distributor Method
Definition
A variant of the multi-period excess earnings method used to value customer relationship intangible assets, which analyses the business from the perspective of a hypothetical distributor that owns only the customer relationships and licenses all other assets from the operating entity. The distributor method simplifies contributory asset charge estimation by modelling a lean distribution business rather than the full operating entity. It is frequently used in purchase price allocations for distribution, retail, and service businesses.
Complementary Terms
Concepts that frequently appear alongside Distributor Method in practice.
A valuation technique used to isolate the value of a specific intangible asset by deducting the returns attributable to all other assets (tangible and intangible) from total earnings. The multi-period excess earnings method is the most common approach for valuing customer relationships and technology in purchase price allocations.
An income approach valuation technique used to value a primary intangible asset by isolating the cash flows attributable to that asset after deducting fair returns on all other contributory assets (tangible and intangible) required to generate those cash flows. MPEEM is the most commonly used method for valuing customer relationships in purchase price allocations under IFRS 3 and ASC 805.
A valuation technique that estimates the value of an intangible asset by modelling the cash flows of a hypothetical business that starts from scratch ('greenfield') with only the subject asset in place, building up all other assets over time. The greenfield method captures the head-start value of having the intangible asset from inception.
A valuation approach that estimates the value of a business by adjusting the book values of all assets and liabilities to their fair values, including the recognition of off-balance-sheet intangible assets that meet IFRS 3 or ASC 805 recognition criteria. The adjusted net asset method is primarily used for asset-holding companies, investment vehicles, and businesses where value resides primarily in the asset base rather than earnings capacity.
A widely used income-based valuation technique that estimates the value of an intangible asset by calculating the present value of hypothetical royalty payments that the owner is relieved from paying by virtue of owning the asset. The method is commonly applied to value trademarks, patents, technology, and trade names in both transaction and financial reporting contexts.
A cost-based valuation approach that estimates the value of an intangible asset by calculating the current cost of creating or acquiring a substitute asset with equivalent utility. The replacement cost method is frequently used for valuing assembled workforces, proprietary software, and databases, adjusted for any functional or economic obsolescence.
An approach to measuring goodwill in a business combination where the acquirer recognises goodwill only in proportion to its ownership interest, rather than attributing goodwill to the non-controlling interest. Under IFRS 3, acquirers have a choice on a transaction-by-transaction basis to measure non-controlling interests either at fair value (full goodwill) or at the NCI's proportionate share of identifiable net assets (partial goodwill).
The required accounting method for business combinations under IFRS 3 and ASC 805, which involves identifying the acquirer, determining the acquisition date, recognising and measuring the identifiable assets acquired and liabilities assumed at fair value, and recognising goodwill or a gain from a bargain purchase. The acquisition method replaced the previously permitted pooling of interests method and ensures that all identifiable intangible assets are separately recognised at fair value on the acquirer's balance sheet.
Put this knowledge to work
Use Opagio's free tools to measure and grow the intangible assets that drive your business value.