NON-CURRENT ASSETS: WHAT IT CONSISTS OF AND EXAMPLES - DUDAS - 2024

The non - current assets is the investment or long - term assets of a company that has a useful life of more than one year. Non-current assets generally last for many years and are considered illiquid, which means they cannot be easily converted to cash.

Examples of non-current assets include investments in other companies, intellectual property such as patents, and property, plant, and equipment. Non-current assets appear on a company's balance sheet.

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They are also known as long-term assets. They are the opposite of current assets, since current assets are assets used in the short term. That is, these assets on the balance sheet contain all the assets that are likely to be converted to cash within a year.

Non-current assets can be considered anything that is not classified as a current asset. Depending on the type of asset, they can be depreciated, amortized or depleted.

What is non-current assets?

For an organization to function effectively and generate a positive return, it requires investing in long-term assets. This is done through internal sources (share capital and reserves) or through external loans.

Non-current assets are referred to as investments made by an organization in assets that are expected to last for more than one year.

Non-current assets are important to investors in a company, because these assets can be long-term investments used for expansion or the launch of a new product line.

The company uses these assets to manufacture goods or provide services for the proper functioning of its daily operations. These assets are capitalized rather than spent.

Capitalize the cost

Capitalizing the cost of assets means that the cost of such assets is not fully spent in the income statement in the year they are acquired, but is allocated over the amount of the asset's useful life and deducted from the cost of the asset all years.

Depreciation of non-current assets helps a business as the asset acquisition costs are spread over the long term. Non-current assets have a useful life for a long time.

Classification on the balance sheet

The assets section of the balance sheet is segmented according to the type of quantified asset (current assets, other assets, etc.).

The main section is "current assets". Here are short-term assets that can be converted to cash within a year or an operating cycle. Current assets include cash, accounts receivable, inventory, and others.

Non-current assets are always classified on the balance sheet under one of the following headings:

- Investments.

- Properties, plant and equipment.

- Intangible assets.

- Other assets.

Investments are classified as non-current only if they are not expected to be converted to unrestricted cash within the next 12 months from the balance sheet date.

Property, plant, and equipment encompass land, buildings, and machinery, including vehicles. Property, plant and equipment can also be called fixed assets.

Finally, intangible assets are goods that do not have a physical presence. Although they can be created, like a patent, intangible assets can also arise from the sale or purchase of business units.

Other non-current assets

Other non-current assets include the cash surrender value of life insurance. A bond sinking fund, established for future debt repayment, is also classified as a non-current asset.

Some deferred income taxes, goodwill, trademarks, and the costs of issuing unamortized bonds are also classified here.

Assets paid in advance

Assets paid in advance can be classified as non-current assets if future benefit is not received within one year.

For example, if rent is paid in advance for the next 24 months, 12 months will be considered a current asset, since the benefit will be used within the year.

The other 12 months are considered non-current, since the benefit will not be received until the following year.

Non-current assets between industries

It is not uncommon for capital-intensive industries to have a large part of their asset base made up of non-current assets. An example of such a company is an oil refinery.

On the other hand, service companies may require minimal or no use of non-current assets.

Thus, while a high ratio of non-current assets to current assets may indicate low liquidity, this may also simply be a function of the respective company's industry.

Examples

Non-current assets are long-term investments of a company or long-term assets that have a useful life of more than one year. Non-current assets cannot easily be converted to cash. They include:

- Land.

- Property, plant and equipment.

- Trademarks.

- Long-term investments.

Both fixed assets and intangible assets fall under the name of non-current assets.

Property, plant and equipment are tangible or fixed assets. This means that they are physical in nature or can be touched.

A company cannot easily liquidate property, plant and equipment. For example, an automobile manufacturer would list its manufacturing plant and machinery within the plant as non-current assets.

Property, like real estate, is also considered a non-current asset. This is because it generally takes more than one fiscal year to sell it.

They are considered non-current assets because they provide value to a business, but they cannot be easily converted to cash within a year.

Intangible assets

Intangible assets are very often non-current assets. They are non-physical assets. An intangible asset could be intellectual property, such as a patent or copyright.

A patent is considered a non-current asset because it has a useful life of more than one fiscal year and is not likely to be settled within a year. Instead, a patent experiences a write-off, which allocates the cost of the patent over its useful life.

Long-term investments

Long-term investments, such as bonds and notes, are also non-current assets, since a company will likely hold its long-term investments for more than one fiscal year on its balance sheet. For example, a company could invest in bonds for its portfolio.

References

1. Will Kenton (2018). Noncurrent Assets. Investopedia. Taken from: investopedia.com.
2. Steven Nickolas (2018). How are current and noncurrent assets different? Taken from: investopedia.com.
3. Steven Nickolas (2018). What are common examples of noncurrent assets? Investopedia. Taken from: investopedia.com.
4. Harold Averkamp (2018). What is a noncurrent asset? Accounting Coach. Taken from: accountingcoach.com.
5. Wall Street Mojo (2019). Non-Current Assets. Taken from: wallstreetmojo.com.