Assets and liabilities of a business 043-03090000

Assets are things the business owns, whereas liabilities are amounts the business owes to another party. The value of the business, known as proprietorship, is defined by the value of all assets less the value of all liabilities. This is shown on a balance sheet and is also known as the net asset value of a business. The formula is:

Proprietorship = Assets - Liabilities

Customers' entitlement to income support payments under Social Security Law are subject to means tests. In addition to the income test, for most payments, the value of a customer's assets are to be taken into account when calculating the rate of payment. The assets test only applies if a customer's assets exceed the allowable limits and a lower rate is payable than under the income test.

Most of the assets owned by a customer are treated as assessable assets and included when calculating the rate of payment unless specifically exempted under a provision of the Act. There is no exemption in regard to business assets. Therefore, as a customer's interest in a business falls within the definition of an asset, the value of this interest must be taken into account when determining entitlement to payments. With the introduction of the new Trusts and Companies legislation on 1 January 2002, assets also include any attributed assets from a customer's interest in a private trust or private company.

Assessable assets are taken into account at their net market value - the point at which a willing purchaser and a willing, but not anxious vendor would reach agreement. The market value of an asset is only decreased by the value of an encumbrance (mortgage) secured against it.

The principle is to assess the value of a customer's interest in the excess assets remaining in the event of the wind-up of a business. That is, if the business operations were to cease, assets of the business were sold and converted to cash and all liabilities repaid, the assessable asset value of the customer's interest in a business would be the amount left over or the amount the customer would receive.

This is accomplished by an assessment of the most recent business balance sheet, with adjustments made to reflect the current market value of business assets, less any allowed liabilities.