Valuing Non-Current Assets
I. Introduction
Every companies flows its business through the use of its assets and its liabilities. This circular financial flow of the business is the key in its development as well as its diversification. It has been said that the assets are the most important factor in the business industry. Through these assets, the company can have the feet to walk on, a foundation to stand and strength to have the guts to face the world of industry. These assets plays an important role in the every firm because it is the economic benefits in the future which was controlled by an entity resulting to the past transactions or even events, from then on it can be obtain the future economic benefits. The asset has two main part or has two kinds, it includes the current assets or the cash as well as the other assets which are expected to convert into cash, can be sold, or even consumed in the either a year or throughout the operating cycle. Including in this kind of asset is the cash and the cash equivalence, the receivables, the short-term investment, he inventory and the prepaid expenses. The other kind of asset is the non-current asset, or the property which cannot be convertible into cash or has been expected to change into cash or it has not been expected to cash to in the same year. In this kind of assets it includes the leasehold improvements, the fixed assets, and the intangible assets. Since, these non-current assets also plays a huge role in the business development, then it is much important that the company should value these and should be treat these as a major part in the sector of the business. But, how should this company treat these? How can it show that it values it? And how is the proper way of improvement the firm with the aide of these non-current issues. These are only some of the questions that the company should answer in order to have a well improved business transactions. These are also the question that this paper tries to gives solutions in order to have an exact and well balance cash flow.
Every company also releases its output of cash flow as well as the balance sheet. This balance sheet also has an indication of the of the non-current assets value at the date of the date for the balance sheet. This helps the users and also the other people to have true as well as fair values of its financial statements for the specified date. Including in this balance sheets are the non-current assets which have been part so that the readers will know the business assets of the firm. In this manner, the company will be able to know not just its current assets but also one of the key in the business development – the non-current assets.
Literature Review
Many literature, books and text had been published in the topic of valuing the non-current assets. There are also many journals and also news had been used by the company in diversification and also in their business improvements. This will be some of the resources that this paper had used that will be a great help in the improvement of this paper.
In the Corporate Law of the section 294(4), it had been provided to the companies that it will be write down their non-current assets value to its going concern that will be reasonable income in spending to acquire the non-current asset. In this law also allows the directors to have an idea to the value of any of the current asset which is shown in the accounting record of the company. Concerning in the company’s concern on the asset’s value it would have a reasonable for the company’s spending in acquiring the assets at the end of the financial year. Part of the law also is that the directors of the company should have an adequate provision in encoding the value of the asset that is made. In containing the accounts includes the explanation and the information will be a prevention to mislead the accounts due to the fact of the over statement of the asset value.
There are many ways in the valuation of the non-currents assets of the company that it will be needed in its development. The non-current asst value to a going company most concerns in the recoverable amounts or the net amount which is expected to recover in the cash inflows as well as its outflows which arise from the continuous use and later asset disposal. In the value of the non-current assets which was shown in the accounting records of the company will either be the cost of the acquisition and less of the any amortization or the adjustment for the revaluation downwards, the accumulated depreciation, or the ascribed to it pursuant value to a revaluation and less than of the accumulated depreciation or the amortization. The book value also of the non-current assets can also be less than and should exceed it recoverable amount. If there will come a time that the book value of the non-current asset had exceeds to its recoverable amount, then its assets should be written to it recoverable amount. In determination of the amount that the company will have to spend in acquiring every non-current asset as in the end of the financial year, the directors of every company will definitely should point out the age and the condition of every asset as well as the similar market availability. The notional replacement cost on an asset also can be known as reference to the current market value. In the notional replacement cost can also be fluctuate per year. Therefore it is important to have a reasonable spending of money in acquiring of the non-current asset compare to the other company which depends on its circumstances including their management’s strategies as well as their philosophies and their internal return. In the notional replacement, it has been compared with the amount in the book value on the company wherein it was concern. Wherein the book value of non-current assets has been exceeded in its recoverable amount, then the notional replacement can also be compared in the new write down new book. In the case that the non-current assets exceed its recoverable amount, this will usually be used to process a liquidator of the said company and expected also on receiving on the basis of the forced sale.
II. Journals Concerning Non-Current Assets Valuation
There are many journals had been studied and had been used by this non-current assets. There are also many companies who had been engage in this kind of research. On of these journals are the non-current assets which was controlled by the Caboolture Shire Council and to be valued according with the corporate policies and the Deprival Method of the valuation. In this reporting, the non-current assets in the Annual Financial Statements Caboolture Shire Council had been applied to the current cost accounting and the principles of the deprival value. In general, the current cost valuation had been based on the replacement or the reproduction of the cost valuation on the specific price indices which was applied to the expert valuations, to the carrying values, or to the current market buying prices which is appropriate.
The standard of the policy which was being made is to satisfy the criterion of the reliability, the information which was provided on the value of the assets which shall not be based on the value of an asset in the best or in the highest value which was used in the Caboolture Shire Council.
a. Assets Acquired at a Cost
The Non-current assets which are being purchased in the aide of the normal
course of the business are should be recognized at their acquisition cost. Taking the example of this one is the sum of the considered sum and the direct cost which is incidental to the acquisition. The cost that had been acquired is the cost which is needed to be recorder in the capital project within the Finance One financial system. These assets can be capitalized to the Non-Current Asset Ledger and be revalued in accordance to the methodology deprival methodology.
b. Acquisition other than at Fair Value
This is classified as the control which has been otherwise gained. Best example for this one is the is the way of the gift, the subsidized purchase, the bequest, the compulsory acquisition which includes the asset that is acquired at almost fair value, it shall be valued at its current estimated market buying price.
c. Donated Assets
The cost of instruction is the initial value of the Non-Current Assets which are being donated as the contributed assets including the water, sewerage, the roads, etc. The construction is being undertaken by the constructor or the developer that must be supply in the relevance asset costing information which is part of the project deliverables. The other donated assets can be brought to the reason of accounting their fair value and determined in their market buying price.
d. Assets which was Constructed by the Caboolture Shire Council in its operations use
The Caboolture Shire Council had gained control of an asset by the “in-house” construction for the purpose of using it in its operations, and then those assets can be capitalized as an acquisition cost.
e. Leased Assets
In this area, the control of an asset has been gained by the means of the finance lease, and the asset will be capitalized at the lease’s present value payment.
III. Valuation of the Non-Current Assets
Some of the assets are being revalued every time. These non-current assets are being written to the recoverable amount wherein the non-current’s carrying value exceeds the recoverable amount. The recoverable amount of the property, publishing rights, the titles, the plants and the equipments, the goodwill and the television and licenses has been determined by the discount of the net inflow which was expected of the cash and arising form their continued as well as its sale.
The depreciation is being provided on the property, on the plant as well as the equipment at the rates appropriate to write off t the net book value which is over the expected useful life for every class of asset. The leasehold land and the buildings are being amortized over the short period of the contract of the useful improvement of the life.
b. Publishing rights, the television licenses and the titles
One of the examples here is the network company. Therefore as a major source or source of the of the distribution of the branded information and the entertainment copyrights, then the company should have a significant and a growing amount of the intangible assets which includes the goodwill, the free and the cable television networks in the station etc. According to the accounting principles which are generally accepted, the company does not record the fair value of the internally and the generated intangible assets. But, the intangible assets are being acquired in the combinations of the business that are being recorded which was the difference of eth cost of the acquiring entities and the amount that is assigned to the specific tangible net asset.
IV. An example of Company Valuation of non-current Asset
The North Dakota Farm has many process of valuing its assets. This farm also has many recommendations in its financial standards. In the valuation of the current asset of the farm depends on the most relevant and the most reliable. On the other hand, the non-current asset is being valuated in many forms. For every farm it requires to have machinery, therefore is valued at the form of the cost subtracted by the accumulated depreciation. The depreciation is the straight line divided by the estimated life of the machine. The valuing of the purchased breeding livestock is simply at cost. The valuation of the raised replacement animals depends on the conservative market value upon entering to the breeding herd. The value will remain constant to the point that the animals leave the herd. In general, the lands are valued at the cost. But, if the farmer had enrolled in the business farm program, then there is a possibility of the one-time revaluing of the land to the conservative value of the market.
Another example of valuing of the non-current asset is the financial report of the Department of Further Education, Employment, Science and Technology in the financial year that was ended during the 30 June 2005 in South Australia. Below is the balance sheet of the said non-current asset.
The Statement of the Financial Position as at 30 June 2005
Property, Plant and Equipment
2005
2004
$’000
$’000
Land and Building
Land at Fair Value
50,534
52,022
Building and Improvements at Fair Value*/Cost
625,622
627,281
Accumulated Depreciation
-276,787
-266,559
Construction Work in Progress
1,118
285
Total Land and Buildings
400,487
413,029
Plant and Equipment
Plant and Equipment at Cost (Deemed fair value)
28,822
27,286
Accumulated Depreciation
-14,959
-13,474
Total Plant and Equipment
13,863
13,812
Libraries
Libraries at Valuation
36,371
25,254
Total Libraries
36,371
25,254
The property, the plant and the equipment which was being controlled by the department were all included in the Statement Financial Position. All the non-current assets who has the fair values from the time of the acquisition is equal to or even greater than the million and the estimated useful lives is also equal to or greater to the five years are being revalued at the intervals which are not exceeded to three years. Following the Australian Accounting Standard, the property, the plant, and the equipment which was donated, gifted or even bequeathed are being recorded as an asset and its fair value form the moment it passes to the department. The basis of recording the land is through the aide of the South Australia Value-General. From the improvements of the building is valued form the current replacement cost to be subtracted to the depreciation cost. The buildings which are currently under construction are recorded in the progress’ work and are being valued at cost. The items on the plant and the equipment simply recorded as the fair value minus the accumulated depreciation. The non-current assets which have an individual acquisition cost which are equal to or is greater than of ,000 and continually depreciated with the aide of the straight-line method and depreciate in the useful lives.
Conclusion
Valuing any product and any materials is indeed a hard part for the manager’s side. This is also the most risky when it comes to the business ventures and to the business development. Valuation especially for the non-current asset seems to be the most difficult but can be seen as one of the most important factor in pursuing the firm t go on top. These value non-current assets also can be revalued when there are material differences in the carrying amount and fair value of the balance date. This can also be revalued if the recorded value of the asset is being adjusted to the amount that is the fairer equivalence of the current value. It has also been determined that the downward revaluation of each individual assets can be made other than which is part of the revaluation of the entire class of the assets where they are belong. Lastly, non-profit assets should be well determined, analyzed and should function well because it may affect not just the profit of the company, not just the managers or the employees but the company in general.
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