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P9 Nov 2007 Q&A Intangible value calculations

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P9 Management Accounting Financial Strategy-- Nov 2007 Q&A

I am facing problems with understanding the answer to P9 Nov’07 Section A question. I wonder if anyone is facing the same problems. I am referring to part (a) of the question regarding intangible asset value calculations. I would appreciate if anyone can help explain to me the following:

 

  1. The ‘market-to-replacement’ method of valuing intangibles involves deducting replacement value of net assets from market value of ITPT.

Replacement net asset value used is: 1,811m = Equity value + uplift in non-current assets + value of intangibles calculated using CIV method.

 (Why add value of intangibles by CIV?)

  1. Referring to part (a)(ii), ‘Net Assets’ valuation method.

 

i)                    Book value of tangible assets plus intangibles based on a ratio approach = 1,563m + 860m.

From what I could understand, 1,563m is value of intangibles using market-to-book valuation not book value of tangible assets as I think it should be. Why so?

ii)                  Book value of tangible assts adjusted for replacement values plus CIV = 1,256m + 555m.

But, the answer given is 2,033m instead of 1,811m. An error perhaps?

Any help will be greatly appreciated!