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October 7, 2015

Indefiniteness in accounting – the case of trademarks in Canada

by Christof Binder, PhD, MBA, and Bill Stamatis, CPA, CFA, ASA BV/IA

The valuation of an intangible asset is based on its useful life, among other factors like cash inflow generating capability and risk. For trademarks, valuators regularly opt for an indefinite life, when no obvious factors exist that would limit the future economic life of the trademark. However, almost all brands are fi nite, and only a small proportion of all brands ever introduced have the potential to exist a hundred years and longer.

Assuming indefiniteness can have two serious effects — one on value and one on accounting. This article, published in the 2015 issue of the Journal of Business Valuation of CICBV, discusses such effects and suggests some guidelines and tools to analyze the lifecycle of a brand and to estimate its remaining useful life (RUL). It also presents new research that examines indefi nite-lived trademarks in Canada and traces their reporting over the past 10 years.

Click here to get the full article.

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