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.
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 organisations hold these assets and the cost of such assets is spread all over the length of time.
Even 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.
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 organisation. 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:
These assets have a physical appearance and are registered under the name of a person or a company. It includes:
These non-current assets do not have a physical appearance but are authorised to a person or an organisation. 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.
How is the Balance Sheet Categorised?
Before delving into the classification of categorising the balance sheet into current and noncurrent assets, it is essential that you understand the concept of balance sheet itself. You should note that a balance sheet can be drafted at any instance for an organisation 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 categorised to list the details of earning and expenditure costs incurred within the organisation.
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. The 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 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.
The short term assets are required for day-to-day functioning of a company or organisation. 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, amortisation, 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 programmes. 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.
1. What are Non-Current Assets?
Ans: 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?
Ans: The different types of non-current assets can be categorised 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?
Ans: The noncurrent assets are placed below the section of current assets.