Net assets seem to be a rather abstract concept, since their value is determined exclusively by calculation - they do not physically exist in nature. Perhaps that is why accountants often believe that their calculation is not at all necessary, and the statements attached to the balance sheet, in which they must be indicated, are just an extra form.
Concept and measurement of net assets
Net Assets is a measure of the value of the assets held by the company, calculated every year. They are the difference between the assets on the balance sheet of the enterprise and its debt liabilities. If the debt of the enterprise exceeds the value of the property, the indicator of net assets is considered negative. When determining the financial condition of such companies, such a concept as the lack of property is used.
The procedure for evaluating the value of net assets is established by law and is carried out taking into account the provisions of accounting and other regulations. For this assessment, a calculation is made based on the data contained in the financial statements.
The assets participating in the calculation include non-current assets of the first section of the balance sheet, as well as current assets located in the second section, with the exception of debts on contributions of the company's founders to the authorized capital. From the list of liabilities, the calculation takes into account short-term and long-term liabilities for loans and borrowings, accounts payable, reserves for future expenses and other liabilities.
The joint-stock company evaluates the value of this indicator every quarter, as well as at the end of the year. This information is displayed in interim and annual reports.
Methods for increasing net assets
The reasons for which situations arise when the activity of an enterprise turns out to be unprofitable may be different. Among the objective factors, the main one is the crisis situation in the market, and among the subjective factors, the use of any tax schemes. Unprofitable activities can lead to the liquidation of the enterprise.
There are several ways to increase the indicator of net assets.
One of the most common and simplest options is to pay off founder contributions. The debt of the founders reduces the assets involved in the calculation, and, consequently, the very indicator of the size of net assets.
Another option may be an increase in the authorized capital, which is carried out due to additional contributions of the company's members or other persons admitted to this company. It can occur by increasing the value of existing shares or issuing additional ones, as well as through the revaluation of intangible assets.
It is also possible to increase this indicator by increasing future income. In this case, the company needs to review the liabilities that can be qualified as future income.
One of the ways is to reduce uncovered losses, which is done by providing shareholders with gratuitous assistance. However, tax costs are envisaged for the amount of such injections, which can reach 20%.
