What are non-current assets?
Non-current assets are long-term investments of a company whose full value will not be realized during the accounting year. Examples of non-current assets include investments in other companies, intellectual property (eg patents) and property, plant and equipment. Non-current assets appear on a company’s balance sheet.
Understanding non-current assets
Non-current assets are also called long-term assets. Non-current assets are capitalized rather than expensed, which means that the company allocates the cost of the asset over the number of years for which the asset will be used instead of allocating the entire cost to the accounting year in which the asset was purchased. Depending on the type of asset, it can be depreciated, depreciated or exhausted.
Key points to remember
- Non-current assets are also called long-term assets.
- The costs of non-current assets are distributed over the number of years of use of the asset.
- Non-current assets appear on the balance sheet under investment: tangible fixed assets; intangible assets; or other assets.
Balance sheet classification
The assets section of the balance sheet is segmented according to the type of quantified asset (current assets, tangible fixed assets, other assets, etc.). The main section is devoted to “current assets”, which are short-term assets that can be converted into cash within one year or an operating cycle. Current assets include items such as cash, accounts receivable and inventories. Non-current assets are always classified in the balance sheet under one of the following headings: investment; tangible fixed assets; intangible assets; or other assets. Investments are only classified as non-current if they are not expected to turn into unrestricted cash in the next 12 months following the balance sheet date. Tangible capital assets – which can also be called capital assets – include land, buildings and machinery, including vehicles. Finally, intangible assets are goods without physical presence. Although they can be created, such as a patent, intangible assets can also come from the sale or purchase of business units.
Other non-current assets
Other non-current assets include the cash value of life insurance. A bond sinking fund set up for the future repayment of debt is classified as non-current assets. Certain deferred taxes, goodwill, trademarks and costs of issuing unamortized bonds are also non-current assets.
Prepaid assets can be classified as non-current assets if the future benefit is not to be received within one year. For example, if the rent is paid in advance for the next 24 months, 12 months are considered a short-term asset because the benefit will be used during the year. The other 12 months are considered non-current because the service will only be received 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 an enterprise is an oil refinery. Conversely, service companies may require minimal or no use of capital assets. Therefore, if a high proportion of non-current assets compared to current assets may indicate low liquidity, it may also simply depend on the industry of the company concerned.