Definition:
Averages total assets is the average book value of the entity’s assets over the different reporting dates. Normally, the value of assets at the reporting date is shown in the balance sheet of the entity. These assets include book current and fixed assets.
Averages total assets are normally used to assess the return on average assets which is assessing the efficiency of using assets for two or more consecutive times. For example, the entity might want to assess the return on average assets for the last three years.
To assess this, the entity needs to measure the amount of net income for those three years and then calculate the averages of total assets. These averages of total assets are the value of assets used by the entity to support the sales and operation of the entity.
Average total assets formula:
Averages total assets = Accumulation of total assets at X period / X period
Total assets at X period is the book value of assets at the reporting period that the entity wants to assess. For example, the book value of assets at the end of 31 December 2015, 31 December 2016, and 31 December 2017
X period is the number of periods that the book value of assets is used for calculation. For example, X period of 31 December 2015, 31 December 2016, and December 2017 is 1 + 1 + 1 = 3
The entity could also use the fair value of assets for calculation.
Example:
The entity wants to assess the return average asset over the last three years 2015, 2016, and 2017. Based on financial statements, the value of assets over the last three years is 6,000K, 7,000k, and 8,000K. CFO wants his accountant to calculate the average total assets for him.
Calculate the average total assets:
Based on the formula above, we can calculate the average total assets follow:
Average total assets = (6,000 + 7,000 + 8,000) / 3 = 7,000K
Based on the above calculation we can get average total assets equal to 7,000K. This figure could be used for calculating the return on average assets for the entity.
