Bob Cimasi and NACVA 2012July 15th, 2012 | Cost Approach | Income Approach & Methods | Medicare | Regulatory Matters | Valuing Goodwill
With apologies, I am compelled to state that slide 35 of Bob Cimasi’s June 2012 NACVA presentation contains a wholesale misrepresentation of the IRS 1996 EO CPE Text with respect to trained workforce. Here is the precise quote of what that document says on the page that precedes the quotation in his presentation about intangible asset valuation using the Cost Approach, taken in context, not wholly out of context as is the case in Cimasi Slide 35:
“Goodwill in the Allocation Technique
The value of goodwill can be allocated to specific intangible assets; the value of the latter is limited to the value of the former, as calculated under the income approach. For example, if the total value of the individual intangible assets exceeds the total value of the medical practice net of the aggregate fair market value of the tangible assets, the amount of value that can be allocated among the intangible assets is more limited. Also, it is important to note that intangible value may not always be present in a medical practice.
Thus, ascribing value to intangible assets is a matter of allocating value derived using the income approach to specific intangible assets. The following example illustrates this process:
Example: The BEV of a medical practice under the income approach is $12,200,000. Medical equipment, furniture, and fixtures have a value of $2,200,000 determined under the cost approach. Buildings and real estate have a value of $6,400,000 determined under the market approach. The maximum value attributable to all intangible assets is $3,600,000.”
Note: “Thus, ascribing value to intangible assets is a matter of allocating value derived using the income approach to specific intangible assets” and “The maximum value attributable to all intangible assets is $3,600,000.” This amount is the difference between the total value using a Discounted Free Cashflow method under the Income Approach, less the tangible assets, which tangible assets are “Medical equipment, furniture, and fixtures” and “real estate.”
There is absolutely no basis whatsoever to claim that this EO CPE document supports exclusive reliance on the Cost Approach to value intangibles. In fact, it specifically states exactly the opposite.
I am deeply disappointed to see so flagrant a misrepresentation used in a Continuing Education Program aimed primarily at Certified Public Accountants. It is a disservice to our profession that cannot go unanswered or unexposed.
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