Accounting for Heritage Assets
Heritage Assets are the assets that have value due to their historical, artistic, scientific, and environment. The assets hold their value due to the contribution to knowledge and culture in the community. The heritage assets will have more value when their life increases.
Heritage assets are different from other fixed assets and current assets. Fixed assets will decrease their value over time due to depreciation, amortization, impairment loss, and usage. The fixed asset will decrease to zero or scrap value at the end of useful life. On the other hand, heritage asset value will increase over time. The older they get, the more value they contain. Moreover, their value is hard to evaluate as there is no market value for them. Each heritage asset has its own value which is almost impossible to compare from one to another.
The company rarely uses assets to generate cash flow. For example, the company owns a piece of land that contains a 200-year-old church. It is the assets that contain value to culture and history. Due to its nature, the government restricts the company from disposing of the asset. The company cannot sell it to other entities as it cannot generate any cash flow.
However, some heritage assets will be able to generate future economic benefits to the entity. It may be the core component of the business. And the business operation will not fully functional if the heritage assets are removed. For example, the company owns the museum, and the company can generate revenue by telling tickets to the visitors. Without the museum, the company will not function well, and its high impact on the revenue.
Heritage Assets Example
The heritage assets include:
Heritage Assets Journal Entry
The heritage assets are similar to other assets which increase on the balance sheet. However, the way that company acquires them is different as the law restricts the owner to sell or dispose of the assets.
The common way of receiving heritage assets is through the donation of the previous owner. The previous donate the assets without any condition, however, the law will restrict company sell or dispose of, so they need to record heritage assets.
When receiving heritage assets as a donation, the company make journal entry by debiting Heritage assets and credit contribution revenue.
Heritage assets will be present as fixed assets on the balance sheet, but due to the feature, they should be presented separately account under fixed assets. Contribution revenue will be present on the income statement.
Characteristic of Heritage Assets
- The legal requirement restricts the company from disposing of the heritage assets. The company needs to keep the assets in the financial statement. It is illegal to dispose of the assets without subsequent issue.
- Their value increase over time even the physical condition is getting worse. As the value of the assets depends on the artefact which does not relate to the physical substance. The value depends on the artefact that provides knowledge or cultural experience to the people.
- It is very hard to estimate the useful life as it keeps increasing value when getting old. Opposite from normal assets that will decrease value when getting old, heritage assets will increase value.
- The assets’ intrinsic value may not reflect the financial value as the market is not available. It is almost impossible to evaluate the heritage assets because each asset has a unique value. We cannot replace this asset with other assets, so we cannot measure the value.
Heritage Assets on Financial Statement
- If we can measure assets value
The company needs to record the heritage assets into the balance sheet if the value is measured reliably. We can treat it like a normally fixed asset by following the recognition and disclosure policy. If we acquire the assets by purchasing, we should record base on a purchasing price. Otherwise, the market value will be used to estimate the assets and record them in the balance sheet.
Subsequently, the heritage asset should be evaluated based on the market value of the company using the revaluation method to measure fixed assets. If the company record fixed assets at cost, heritage assets will be recorded at cost too. However, we will not depreciate the heritage assets as the useful life cannot be measured reliably. It will be recorded at cost and test for impairment on the reporting date.
- If we cannot measure assets value
If the heritage assets value does not measure reliably, the company will not be able to record it in the financial statement. However, we need to disclose the nature of assets, how we receive them, and the reason which we are unable to record them on balance sheet. The disclosure should include the current information related to the asset value such as insurance incentives.