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Maritime Assets held for Sale

Maritime Assets held for Sale

Pinelopi Kassani

A vessel can have an economic life of approximately 25 years or more. It is presented on a company’s statement of financial position as a non-current asset and is usually collateralized so that the company can raise funds by means of a loan from a financial institution. Despite its non-current nature, a vessel may not be held for the entire duration of its useful life. Because of the cyclicality of the maritime market when favorable market conditions emerge, opportunities for the vessel owners may present themselves to dispose of the vessel after operating it for a number of years in order to realize the value of their investment as well as a handsome profit.

The imminent disposal of a vessel impacts the financial statements of the vessel owning company, even before the actual sale of the asset, as long as specific conditions apply. This is because of the financial reporting treatment required by the IFRS, whereby a vessel that is held for sale should no longer be presented as a non-current asset but as a current one. In addition, its measurement on the face of the statement of financial position changes to reflect its fair value, which is now more relevant to the users of the financial statements. Last but certainly not least, any liabilities associated with the vessel that is held for sale, such as bank loans, should also be reclassified as current liabilities.

Understandably, a vessel that meets the criteria of an asset held for sale will have a significant effect on many of the vessel-owning company’s KPIs, especially those relating to liquidity and working capital. It is therefore crucial for management to be aware of the likely implications of their decision to dispose of the vessel, in conjunction with how far they have advanced with implementing their decision as at the reporting date.