What are Non-Current Assets?
Non-current assets are those assets that cannot be converted into cash easily and are mostly meant for long-term investments. The liquidity associated with such assets is generally low. On the contrary, current assets have higher liquidity and you can convert the investment into cash as and when required.
In this context, let us know in detail about Non-Current Asset
What are Non-Current Assets?
For instance, current assets are inventory, accounts receivable or other liquid assets, whereas non-current assets are property, land, machinery or equipment, etc. Usually, the tenure of holding non-current assets is more than a year. Companies or organizations hold these assets and the cost of such assets is spread all over the length of time.
The intangible assets such as reputation, branding, goodwill are all considered under the ambit of non-current assets examples. Since all of these cannot be transformed into cash easily and are likely to remain stagnant for a period of time, they are termed so.
Non-current assets are assets that have a usage period of one year or more and cannot be easily monetized. Assets are recorded for a fee and include property, plant and equipment, intellectual property, intangible assets and other property, plant and equipment.
Non-Current assets are capitalized, not recognized as expenses, their value is deducted, and the assets are allotted over the years they have been used. Companies purchase non-current assets for business use because their usefulness lasts for more than a year. Assets can be depreciated or depreciated, depending on the type.
What are the Different Types of Non-Current Assets?
As we dig deeper into the concept of non-current assets, we have to understand how these assets work for an organization. Considering the fact that they are spread over a timeframe, the full value of such assets cannot be assessed based on a single financial year.
Instead, one has to have a clear understanding of non-current assets and be able to place them in the balance sheet of a company to acknowledge the value they are adding to that specific financial year. However, to do so, you have to be aware of the different types of non-current assets as well.
The Classification is as Follows
Tangible assets are usually physical or assets owned by a company, such as real estate or equipment. These are the main types of assets that companies use to manufacture products and services. The value of the property, plant and equipment item corresponds to the initial acquisition cost minus all accumulated depreciation. Depreciation is a non-cash notation that depreciates the value of an asset over time. However, not all physical assets are depreciated. Assets such as land tend to increase in value but are held for a fee. These assets have a physical appearance and are registered under the name of a person or a company. It includes
Intangible Assets are products that do not have a physical presence but offer high economic value. Intangible assets can be created, for example, through patents, but also from the sale or purchase of business units. Intangible assets can be deterministic or uncertain. An example of an intangible asset is brand awareness. This will last as long as the company is floating. On the other hand, certain intangible assets have a finite lifespan and remain in the company only for the duration of the contract or arrangement.
An example of a particular intangible asset is a legal arrangement to manage another company's patent. The company is obliged to operate the patent for the agreed period and the patent creator remains the owner of the patent. Even if intangible assets have no physical value, they can make a significant contribution to a company's long-term success. These non-current assets do not have a physical appearance but are authorized to a person or an organization. They are:
Therefore, the non-current assets list shows that they can be both tangible and intangible in nature. Hence, it is your understanding that will help you in drafting the balance sheet rightfully.
Natural resources are natural resources that come from the earth. Examples of natural resources include wood, fossil fuels, oil fields and minerals. Natural resources are also called a waste of assets because they get exhausted when they are consumed. Assets need to be consumed by extraction from the natural environment and that means extra cost. For example, natural gas is an example of a natural resource that must be mined for use. In other words, to use an asset, you need to mine it or pump it out of the ground. Natural resources are displayed as the acquisition cost plus exploration and development costs minus cumulative depletion.
How is the Balance Sheet Categorized?
Before delving into the classification of categorizing the balance sheet into current and noncurrent assets, it is essential that you understand the concept of the balance sheet itself. You should note that a balance sheet can be drafted at any instance for an organization or a company.
The main components of a balance sheet include assets, liabilities and several other equities of the owner. After that, these are further categorized to list the details of earning and expenditure costs incurred within the organization.
In a balance sheet, current assets are placed on top as they form the leading section. They can be easily converted into cash within the next 12 months of preparing the balance sheet.
On the other hand, noncurrent assets are placed below the current assets. These assets are long-term investments and cannot be liquidated quickly. Examples of non-current assets are land, property, buildings, goodwill, trademark, etc.
Here is an example of a balance sheet with the current and noncurrent assets listed for a clearer understanding.
Therefore, as you can see the assets are clearly represented in the table, with proper classification of every type. Students should understand that in case they are taking up a profession that relates to accounting activities and requires the preparation of balance sheets, they should be able to place the data correctly under the right subhead.
Only then the company’s economic position or growth at any particular instance can be evaluated correctly. Besides, drawing a proper conclusion out of the balance sheet is also essential after preparing the same in order to draft a report for the company.
You should know that current assets are generally short-term in nature as they are subjected to liquidation as and when demanded. Contrarily, non-current assets are long-term investments and thus cannot be liquidated immediately.
Short-term assets are required for the day-to-day functioning of a company or organization. It is required for paying the resources and meeting other expenses that might be incurred during everyday operations. Whereas, the noncurrent assets are classified to last more than a year or for a lifetime, although they might be subjected to wear and tear and periodical maintenance.
Since the value of such assets are dependent on the market conditions and also on depreciation, amortization, etc. it is likely to be re-evaluated every time the balance is prepared.
To know more about balance sheets, current assets, and non-current assets, you can take a look at our online learning programs. We provide apt study materials for getting your concepts cleared faster. Besides, you can also improve your scores by learning through study materials as they are compiled by our team of excellent tutors.
Examples of Non-Current Assets
Property, Plant and Equipment (PPE)
They are long term physical assets that are not easily converted to cash.
Goodwill is an intangible asset that represents the excess purchase price of another company.
Long Term investments
Long term investments are such as stocks or bonds investors buy from the market hoping for better value in the future.
FAQs on Non Current Assets
1. What are Non-Current Assets?
Non-current assets are those assets that have lower liquidity, meaning they cannot be converted into cash quickly. These assets are long-term investments unlike current assets, that can be transformed into cash on demand.
2. What are the Types of Non-Current Assets?
The different types of non-current assets can be categorized broadly into tangible and intangible assets. While the former includes plant machinery, land, property, buildings, etc., the latter includes goodwill, copyright, trademark, patent, etc.
In either case, these non-current assets cannot be liquidated easily and the cost for which cannot be assessed at any instance.
3. Where do you Place Non-Current Assets on a Balance Sheet?
The noncurrent assets are placed below the section of current assets.
4. How can you differentiate between current assets and noncurrent assets?
The basic difference between current assets and noncurrent assets is how fast current assets get converted into cash whereas noncurrent assets are kept firm for over a year, then it is called noncurrent assets or fixed assets.
5. How are Current and noncurrent assets financed?
For Fixed assets or noncurrent assets, long-term funds are used whereas for financing current assets short term funds are used.
6. What are the different kinds of noncurrent assets?
There are three types of noncurrent assets namely-
7. What are the examples for Noncurrent assets?
Examples for noncurrent assets are-
Property such as building, plant, and equipment
Patents, copyrights, etc
Long term investments
Natural resources such as gold, silver, etc
8. Define Current Assets
Current Assets are short-term assets that can be sold or else consumed within less than a year or the corporation’s normal operating cycle. Companies hold the current asset in the form of cash, or convert it to cash, or use it to provide goods or services. These are acquired for trading purposes. This includes current assets, inventories, short-term loans, accounts receivable, cash and cash equivalents, securities and prepaid expenses, etc.