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Intangibles are identifiable non-monetary assets without physical existence. Since intangibles can be identified as a separate asset, appropriate accounting treatment is necessary. AS 26 provides identification technique, recognition criteria, amortization method and disclosure aspects with respect to intangibles. To facilitate recognition, the intangible asset should possess the characteristics of an asset. They are:

Identifiable Asset is said to be identifiable if it is distinguishable from other assets Control over asset The enterprise should possess control over the asset obtaining legal rights, technical knowledge, patents or agreements etc. Future economic benefits the asset must be able to save cost or generate revenue in future or a combination of both.

Intangibles should be initially measured at cost. Cost depends on the mode in which the Intangible Asset is acquired.

If intangible asset is directly acquired purchase price including the directly attributable costs and any non-refundable taxes & duties. If intangible asset is acquired through exchange of another asset FMV of the asset given up. If intangible asset is acquired through issue of shares or securities FMV of securities issued or FMV of asset acquired whichever is more clearly evident. If intangible asset is acquired through amalgamation Recognized only if amalgamation is in the nature of purchase. It can be recognized by transferee even if not recognized by transferor. (AS 14)

If intangible asset is acquired through Govt. grants Recognized at nominal amount.

Internally generated goodwill is not recognized.

The process of research & development is classified into two distinct areas: Research phase all expenses incurred are to be charged as expenses as and when incurred. Development phase Expenses are to be capitalized if and only if the following conditions are met:

Technical feasibility of completing intangible asset. Availability of resources Intention to complete and use intangible asset Ability to use Probability that intangible asset will generate future economic benefits (external market) Expenses incurred can be measured reliably.

However if expenses are incurred and the intangible asset is not created, then all such costs are to be charged as expense. Once written off as expense, it cannot be reversed and converted to intangible asset later. Amortization refers to the allocation of an account to be charged off over the useful life of the intangible asset. Carrying amount of intangible asset is the cost less residual value distributed over the useful life of asset.

Residual value Should be taken as 0 (zero) unless there is commitment by third party to purchase the intangible asset at the end of its useful life or it is probable that an active market exists and will exist at the end of the useful life.

Useful life the standard prescribes 10 years unless there is clear evidence that useful life is more than 10 years.

The amortization should be based on the pattern in which the future economic benefits are consumed (matching concept). If pattern cannot be determined reliably then straight line method is to be used. Estimation of recoverable amount at each year-end is a must for:

Intangible asset that is not ready for use Intangible asset amortized over a period exceeding 10 years Intangible asset is disposed or, No future economic benefits are expected to flow (i.e retired from active use)

An intangible asset should be eliminated from balance sheet if:

If asset is retired from active use then it should be recognized at carrying cost. In case of disposal , the gain or loss is to be recognized in profit & loss account. Technical knowhow purchased for manufacture of products will form part of production cost hence no separate amortization. Legal cost incurred in connection with infringement of right under patent would fall within purview of subsequent expenditure.

Disclosure aspects include:

Accounting policy adopted for intangible asset Useful life and amortization rate and method Gross carrying amount, accumulated amortization and impairment loss at beginning and end of the year. Reconciliation of carrying amount at beginning and end of year R & D expenses treated and recognized as expense during the year Reason why the useful life is estimated to be more than 10 years Amount of commitment for acquisition of intangible to be shown as part of contingent liability.

'Statutory Accounting Principles - SAP'

A set of accounting regulations prescribed by the National Association of Insurance Commissioners for the preparation of an insuring firm's financial statements.

'International Financial Reporting Standards - IFRS'

A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board. IFRS are sometimes confused with International Accounting Standards (IAS), which are the older standards that IFRS replaced. (IAS were issued from 1973 to 2000.)

The goal with IFRS is to make international comparisons as easy as possible. This is difficult because, to a large extent, each country has its own set of rules. For example, U.S. GAAP are different from Canadian GAAP. Synchronizing accounting standards across the globe is an ongoing process in the international accounting community.

What are the advantages of converting to IFRS? By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier. Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use IFRS. Companies may also benefit by using IFRS if they wish to raise capital abroad.

What could be the disadvantages of converting to IFRS? Despite a belief by some of the inevitability of the global acceptance of IFRS, others believe that U.S. GAAP is the gold standard, and that a certain level of quality will be lost with full acceptance of IFRS. Further, certain U.S. issuers without significant customers or operations outside the United States may resist IFRS because they may not have a market incentive to prepare IFRS financial statements. They may believe that the significant costs associated with adopting IFRS outweigh the benefits. What are some of the most important specific differences between IFRS and U.S. GAAP? Because of longstanding convergence projects between the IASB and the FASB, the extent of the specific differences between IFRS and GAAP has been shrinking. Yet significant differences do remain, most any one of which can result in significantly different reported results, depending on a company's industry and individual facts and circumstances. For example: IFRS does not permit Last In, First Out (LIFO). IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely. IFRS does not permit debt for which a covenant violation has occurred to be classified as non-current unless a lender waiver is obtained before the balance sheet date.

Dividends vs Earnings per Share (EPS) Earnings per share and dividends per share, both indicate the future prospects of the firm in terms of shareholders return and income allocated per shareholder. The two are different from each other in that, earnings per share measures the $ value of net income that is available for each of the companys outstanding shares, and dividends per share shows the portion of profits that is paid out as dividends per share. The basic earnings per share is a measure of profitability, so the higher the EPS the better for a firms shareholders. Higher dividends per share, on the other hand, may indicate that the firm cannot reinvest enough funds back into the firm; therefore, distributing those funds. This is usually the case for a company with lower growth rates.

Leveraged finance questions (1) Why leveraged finance? Please give me some deal examples that you have read about. (2) What is meant by EBITDA? How is it calculated? (3) What is meant by senior debt? Subordinated debt? (4) What is an LBO? Why are they important to leveraged finance? (5) What is leverage? Why is it important? Answer 1: Similar to with "Why investment banking," it is imperative that you explain your interests in the field clearly and succinctly. As mentioned earlier, think through your personality traits, extracurricular activities, and personal interests in order to answer this question. As for deal examples, be sure to read industry publications, keep up with current financial events, and look for different types of transactions. Also, some other important points you might want to note: the transaction volume versus that of a coverage group at an investment bank, the exposure to private equity firms and hedge funds, and possibly your interest in the debt markets.

Answer 2: As discussed earlier, EBITDA is Earnings Before Interest, Depreciation, and Amortization. It is often times used as a proxy for a company's cash flow, which will be used to measure the potential of a company to service debt. Essentially, it is the cash flow generated by a company. Answer 3: Often discussed as "seniority" and mentioned in prior sections, debt is structured in terms of layers. Senior debt usually refers to the loans and bonds of a company and the "senior" portion of this term often refers to the nature of the debt in relation to other financial instruments. For example, equity is "junior" to debt in the capital structure of a company. This becomes increasingly important when companies are forced into bankruptcy and/or liquidation. Furthermore, the seniority of a financial instrument within a company often times dictates the return that investors will require, in order to sell in the financial markets. Answer 4: An acronym for "leveraged buyout", the LBO is the bread-and-butter transaction in the world of leveraged finance. Answer 5: Understandably, leverage is the key concept in leveraged finance. The term leverage refers to a ratio of the amount of total debt to EBITDA that a firm currently has. This ratio helps to explain a company's financial stability, relative to its peers. A common misperception is that for most of these questions, there is a right or wrong answer. This is not the case. Most interviewers are mainly trying to assess who you are, whether you would be a good fit for an organization and how much you know about the job, career path, industry and yourself. More than anything, it is important to keep your cool during the interview, always trying to answer a question without giving up and getting frustrated. If you do not know the answer to a question, working around the question and saying, "I don't know that, but I DO know this &" or "I would go here to find that answer," will usually suffice. These interviewers are definitely not expecting you to know everything. Rather, they want you to be creative, resourceful and interested. Subsequently, the absolute worst thing you can do in an interview is say, "I don't know," and give up. However, in order to be successful, you must absolutely do your homework. Read The Wall Street Journal regularly and be sure to skim the headlines the day of your interview. Scour the company's web site, making note of any recent major headlines. Showing a genuine interest in the firm is much easier when you can ask questions about a recent deal or talk about a recent organizational announcement. This also gives you a chance to bond with your interviewer. After the interview is over, write a thank you e-mail or even a handwritten note to all of your interviewers. Phone calls are cumbersome, so avoid them. A simple "thank you" e-mail will not go unnoticed. MOST COMMONLY ASKED FINANCE QUESTIONS :

WACC, or Weighted Average Cost of Capital , is a financial metric used to measure the cost of capital to a firm. It is most usually used to provide a discount rate for a financed project, because the cost of financing the capital is a fairly logical price tag to put on the investment.WACC is used to determine the discount rate used in a DCF valuation model. The two main sources a company has to raise money are equity and debt. WACC is the average of the costs of these two sources of finance, and gives each one the appropriate weighting. Using a weighted average cost of capital allows the firm to calculate the exact cost of financing any project. The formula for how to calculate WACC may seem complicated but in reality is fairly simple: (Percentage of finance that is equity x Cost of Equity) + (Percentage of finance that is debt x Cost of Debt) x (1 Tax Rate) Net Present Value (NPV) is a financial accounting term used to determine the value of money in the future at a value today. Money at some point in the future is usually worth less than money in the present so a discount rate has to b e applied (usually a risk-free interest rate). More specifically, NPV is the difference between the present value of future cashflows and outflows, and is used to determine the profitability of an investment. If the NPV is positive, the project is worth undertaking and vice versa. Net Present Value is calculated by summing the cash flow divided by the interest rate in every future year, and then subtracting the initial expenditure.

Market capitalization is the market value of the issued equity of a firm. It is calculated by multiplying the number of shares in the market by the price per share. Market capitalization is typically used to assess the size of the firm in question, the rough categories are: Small Cap - $2 billion or less Mid Cap - $2-10 billion Large Cap - $10 billion or more As of 19th October 2011, the companies with the two largest market caps in the world are Apple Inc. (AAPL) and Exxon Mobil (XOM). A derivative is a financial product whose value is derived from another asset (also known as the underlying asset). Derivatives are frequently used for speculation and hedging of risk and the most common forms of derivatives are: Futures Options Swaps A future is a derivative which can be traded on financial markets. It is a contract that means the buyer (seller) is obligated to buy (sell) an asset at a pre-determined date at a pre-determined price. Futures can be settled either in cash or in actual delivery of the asset.

A future is an example of a leveraged instrument. For example, if one was to buy a future for 1000 barrels of oil, they would not need to pay the full price of 1000 barrels, but it would be giving the holder exposure to that much oil. This is an example of the performance of futures: Investor A sells Investor B a futures contract for 100 shares of Apple at $400 per share, and the cost of the contract is $20. An option is a financial derivative that gives the holder the right, but not the obligation to buy or sell a financial asset at a pre-determined price during a pre-determined period. The issuer of an option has to comply with the wishes of the option holder, regardless of whether it is a financially good deal. There are two kinds of options: Put the option to sell Call the option to buy Options are used as a means of hedging or of relatively leveraged speculation (this is not leverage in the usual form as there is no requirement to borrow money and the losses are limited, but the potential returns are higher than with other investments). There are 3 key terms to know when considering options: Strike Price the value at which the shares can be sold (i.e. $200), regardless of the current market value Exercise Date the date by which the option has to be exercised or expires Contract the contract of an option provides the buyer with exposure to 100 shares. The price of an option is always per share amount so the cost of the contract will be multiplied by 100 Return on Investment, or ROI, is an indicator of the profitability of an investment relative to the amount invested. The calculation for ROI is: ( Final Value of Investment Cost of Investment ) / Cost of Investment Return on Investment is used to assess the profitability on an investment for different potential investments. If a project has a lower ROI than another project, then it should be disregarded in favor of the other. Price to Earnings (P/E) is a financial metric which shows the ratio of a firms current share price to its earnings per share. This is an extremely common multiple used to evaluate whether a company is under or overpriced. Usually the higher the P/E ratio, the more overvalued the firm is. The calculation of P/E is: Market Value Per Share / Earnings Per Share For example, if a share is currently trading at $50 and EPS are $2 per share, the P/E ratio is 25 ($50 / $2).

The P/E of different firms cannot really be compared unless they are in the same sector as the typically P/E values will vary between sectors. Technology firms for example usually have high P/E ratios. A breakeven point is the level at which an investor or firm will have made no profit and no loss on an investment, i.e. a return of zero. Investors and firms calculate a point or price at which all their costs are offset, and any gain above that breakeven point is profit. For an option, the breakeven price will be the strike price with the premium taken into account. For example, if you own a call option which cost $2 to buy and has a strike price of $20, the stock price will need to be $22 for you to breakeven.
What is brand valuation? is a frequently asked question. Brand valuation is the process used to calculate the value of brands. Historically, most of a companys value was in tangible assets such as property, stock, machinery or land. This has now changed and the majority of most companys value is in intangible assets, such as their brand name or names.

The value of brand has been recognised for over a hundred years. John Stuart, Chairman of Quaker said in about 1900, "If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trade marks, and I would fare better than you." However, techniques to quantify brand value have become more sophisticated with the advent of computerised software such as Excel in the mid 1980s. Brand valuations hit the financial headlines when they were tabled to defend Rank Hovis McDougall (RHM) from a hostile takeover from Goodman Fielder Wattie (GFW).

Since 1988, brand valuation methods have improved and consolidated, thanks in part to their acceptance in 2005 under International Financial Reporting Standards (IFRS). IFRS stated that, for the first time, brands and other acquired intangible assets could be reported on a companys balance sheet.

Brands are valued for many different reasons, such as for legal disputes, strategic management, internal communications, business management, brand securitisation and M&A. Brand valuation models follow standard guidelines. Models for valuing brands follow the same principles of valuation that are used for valuing other tangible assets economic income approach, market approach and cost approach.

The application of the brand valuation models requires specialist knowledge and experience.