What is the proper methodology for determining the fair value of customer relationship intangibles?
In many acquisitions, customer relationships are a significant asset that must be quantified in order for the client to comply with FASB 141. The fair value of a customer list is the present value of the after-tax cash flow projected over the remaining useful life of the acquired customer list. As part of the valuation, the remaining useful life of the customer relationship asset must be determined. The determination of remaining useful life is generally computed using customer survival rates developed through a complex lifing analysis. After life is determined, revenues and expenses are then projected over the expected remaining life of the list and discounted to present value.
In many acquisitions, customer relationships are a significant asset that must be quantified in order for the client to comply with FASB 141 (ASC 805). The fair value of a customer list is the present value of the after-tax cash flow projected over the remaining useful life of the acquired customer list. As part of the valuation, the remaining useful life of the customer relationship asset must be determined. The determination of remaining useful life is generally computed using customer survival rates developed through a complex lifing analysis. After life is determined, revenues and expenses are then projected over the expected remaining life of the list and discounted to present value.
