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What are Non-Current Assets?

17 Sep

What are Non-Current Assets?

Assets and current assets are defined in the previous accounting topic. Now we discuss about non-current assets.

As previously defined, non-current assets are those economic resources of an enterprise which are not expected to be used, utilized, or immediately available within the normal business operations or normal operating cycle of the business. This is the opposite scenario for current assets, which are expected to be used, utilized or immediately available within the normal business operations or normal operating cycle, which is usually within one year.
non-current-assets

Non-current assets are classified into the following:

Long-Term Investments – are securities or other investment instruments which are not expected to mature within one year. This can be in form of bonds, investments in stocks, time deposits which will mature after one year and other securities. Land owned by the business and held to be sold after a year or more when the value increases is also an example of long-term investment.

Property, Plant and Equipment – are physical or tangible assets owned and held by an economic enterprise for use in the business operations. The uses for these assets include, but not limited to, the production of goods for sale or rendering of services, in case if the business is service in nature. Buildings, plant and equipment lose or diminish its value because of wear and tear and depreciation. This decrease in value is presented as a contra-asset account which is called accumulated depreciation. However, not all property, plant and equipment assets are subject to depreciation. An example of this is the land where the business or plant is located. Land owned by the business that is intended to be sold for more than a year or more in order to increase its market value is not to be classified as property, plant and equipment, but as a long-term investment.

Intangible Assets – are non-physical assets of the business enterprise which have a useful life of more than one year. Intangible assets include patents, copyrights, trademarks and goodwill are example of intangible assets. An example of Goodwill being recognized as an intangible asset is when an acquiring company acquired a business and paid the price at more than its fair market value or at more than the fair market value of all assets acquired. The excess of the price paid for the value of the assets is called as goodwill and is recorded as an intangible asset.

As an example, assume Company A acquired the properties of Company B at $$500,000.00. Total assets to be acquired by Company A have a fair market value of S$420,000.00 composed only of Property, Plant and equipment. The difference of $80,000.00 will be recorded as Goodwill which is an intangible asset of the acquiring Company A.

Other Assets – are assets of the company which do not fall the classification for current asset, investment, property, plant and equipment and as intangible asset. Examples of other assets include deferred tax assets or credits.

 

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