• # Average values

The value of a matter is measured at several points during either the income year or the income period if either:

• the thin capitalisation rules applied for only part of the year
• different thin capitalisation rules applied to different parts of the year.

The value is then averaged over that year or period.

A non-ADI entity can calculate the average by applying one of the following three methods:

• the opening and closing balances method
• the three measurement days method
• the frequent measurement method – this method contains two sub-options: a quarterly option and a more frequent option.

One method must be used to calculate the average value of all matters and must be consistently applied during the period. However, an entity can change the method used from one income year to the next. Also, if an entity changes categories part-way through the year, it can use different methods. For example, if an entity was an inward investment vehicle and then becomes an outward investor (for example, by acquiring a foreign subsidiary), it can use different methods for each part year period. See Application to part-year periods.

An ADI must always use the frequent measurement method.

The different methods are explained in the following table.

Table 7: Methods for valuing matters

Method

Days on which value is measured - measurement days

How to calculate the average value

Special conditions

Opening and closing balances

The first day of the period

The last day of the period

Add the values together and divide by two

Cannot be used by an ADI entity

Three measurement days

The first day of the period

The last day of the first half of the income year

The last day of the period

Add the values together and divide by three

Cannot be used by an ADI entity

The period must include at least either the first day of the income year or the last day of the income year and be at least six months long

Frequent measurement method (quarterly basis)

The first day of the period

The last day of each quarter in that period

The last day of the period, unless the last day was already included

Add the values together and divide by the number of measurement days

One of the methods that must be used by an ADI entity

Frequent measurement method (more frequent basis)

The measurement days are the days occurring at a regular interval chosen by the entity, for example, monthly, weekly, daily.

The first day of the measurement period

The last day of each regular interval for the measurement period

The last day of the measurement period unless the last day was already included in the second dot point.

Add the values together and divide by the number of measurement days

One of the methods that must be used by an ADI entity

The regular interval selected cannot be less than one day or more than three months

An entity can choose to measure some matters on a more frequent basis under this method and measure the remainder on a quarterly basis – for example, measure assets and debt daily and non-debt liabilities and equity quarterly. However, in respect of the matters that the entity has selected to measure more frequently, it must use the same regular interval – for example, the entity cannot measure assets daily, debt weekly and non-debt liabilities monthly.

Example 9: Three measurement days

ABC Co uses a standard income year – 1 July to 30 June. It becomes subject to the thin capitalisation rules on 1 November 2014 and remains subject to the rules until the end of the financial year. The company can apply the three measurement days method because the period is at least six months and includes the last day of its income year. The three measurement days are 1 November 2014, 31 December 2014 and 30 June 2015.

If ABC Co has assets of \$62 million, \$65 million and \$53 million on 1 November 2014, 31 December 2014 and 30 June 2015 respectively, the average value of assets for the period is \$60 million.

End of example

Example 10: Frequent measurement method – quarterly basis

XYZ Co has a substituted accounting period running from 1 January to 31 December 2015 and chooses to measure all its matters quarterly in its 2015 income year. On the first day of the measurement period, the value of its assets is \$52 million. On the last day of each quarter in its income year, the value of its assets is as follows:

• \$61 million – 31 March 2015
• \$65 million – 30 June 2015
• \$63 million – 30 September 2015
• \$64 million – 31 December 2015.

These values are added together and divided by five. The average value of assets for the year is \$61 million.

End of example

Example 11: Frequent measurement method – more frequent basis

LCD Co uses a standard income year (1 July to 30 June) and chooses to measure its debt capital on a monthly basis. The relevant values are as follows:

• On the first day of the year (1 July 2015), its debt capital is \$60 million.
• On the last day of July, August and September, its debt capital is \$65 million.
• On the last day of October, November and December, its debt capital is \$70 million.
• On the last day of January, February and March, its debt capital is \$75 million.
• On the last day of April, May and June, its debt capital is \$80 million.

Adding the amounts together and dividing by 13 (being the number of measurement days) gives an average value of debt capital for that period of \$71.54 million.

LCD Co then measures its remaining matters (debt, non-debt liabilities etc) on a quarterly basis.

End of example