Businesses may have a wide range of intangible assets at their disposal. One important type of such assets that tend to increase in value over time is databases and subscription lists.
This is especially so if the lists are assembled one item at a time. Consider a customer database that grows as the business adds new customers. A customer list of 100 is worth less that 1,000; while a database with 10,000 customers is worth even more. Compiling the list of 10,000 customers is going to cost more than 1,000 or even 8,000. The reason is that such lists grow one item at a time and the costs of expanding the list are incurred at every step.
Valuing such databases is likely to be done two ways. One way is to estimate the cost of putting the list together as of the current date. On the other hand, you can assess future sales and profits less the costs of compiling the list. In either case the result is the database value to the business.
One important point is that such databases or lists have the potential to grow in value. As the number of customers in the list grows there is the potential for even greater list value.
So if the database grows continuously, assigning a value to it may give you a wrong answer. If the database is worth $10,000 now or $1 per customer in the list, then even a 30 year useful life would result in some $333 being written off each year.
If the database doubles in size in 3 years, its value may well be $20,000. Instead, the depreciation shows that the database list is worth $9,000 due to depreciation.
The depreciation may not reflect what is really going on. As the database grows, its value should grow. Instead, the depreciation makes this intangible asset look less valuable each year.
While some intangible assets may have a limited useful life and decline in value, others, as the example above shows, do just the opposite.