IFRS 13 Example: valuation of a customer base and customer relationship using multi-period excess earnings method

Below are calculations accompanying the example available on IFRScommunity.com under direct link below:

https://ifrscommunity.com/knowledge-base/ifrs-13-fair-value-measurement/#link-ifrs_13_example_valuation_customer_

Valuation of customer base of TC as at acquisition date using multi-period excess earnings method

924 Present value of cash flows for years 20X1 to 20X5 (the part "*(1+WACC)^0,5" in the form
1,307 Present value of terminal year
2,231 Total fair value

Cash flow projections

1 2 3 4 5
20X1 20X2 20X3 20X4 20X5 terminal year
Forecast Forecast Forecast Forecast Forecast

Revenue 3,000.0 2,900.0 2,750.0 2,660.0 2,500.0 2,400.0

Content costs 1,600.0 1,546.7 1,466.7 1,418.7 1,333.3 1,280.0
Customer care costs 200.0 193.3 183.3 177.3 166.7 160.0
Allocation of network costs 850.0 821.7 779.2 753.7 708.3 680.0
Working capital contributory
charge 56.0 54.1 51.3 49.7 46.7 44.8
Profit before tax 294.0 284.2 269.5 260.7 245.0 235.2
Hypothetical tax at 20% 58.8 56.8 53.9 52.1 49.0 47.0
Cash flow after tax 235.2 227.4 215.6 208.5 196.0 188.2

other inputs
7.00% post-tax discount rate (can be WACC which is discussed in chapter covering IAS 36, but m
-4.36% PGR (perpetuity growth rate) - estimated growth rate beyond period covered by cash flow
d excess earnings method

irect link below:

xample_valuation_customer_base_customer_relationship_multi-period_excess_earnings_method

"*(1+WACC)^0,5" in the formula places the cash flow in the middle of each year instead of the end of the year)

this is the terminal year - cash flow projection beyond the period covered by the forecast, it usually is equal or close to the

Revenue is declining as customers switch to competitors, no new customers are taken into account as this valuation relate

hapter covering IAS 36, but may be adjusted depending on the nature of the asset being measured)
nd period covered by cash flow projections (it will always be negative for customer base - see the comment next to revenue)
 , it usually is equal or close to the last year covered by the forecast

o account as this valuation relates to existing customer base only

mment next to revenue)