A non-current asset is an asset that cannot be readily exchanged for another asset. An asset cannot be readily exchanged for another asset when it is a large physical object. Large physical objects are non-current assets. Non-current assets include large physical objects like industrial equipment and real estate. Other types of assets cannot be readily exchanged for other assets, also. Other types of assets that cannot be readily exchanged for other assets are also non-current assets. Other types of non-current assets include intellectual property, like patents, and long-term investments.
What are Non-Current Assets?
Non-current assets are assets that are illiquid. Assets are “illiquid” when they cannot be easily used as units of exchange. Assets cannot be easily used as units of exchange when they have certain characteristics. The characteristics of illiquid assets make them unable to be easily used as units of exchange. Assets that are unable to be easily used as units of exchange are called “non-current assets”.
What are some Examples of Non-Current Assets?
Non-current assets fall into several common types. One common type of non-current assets is large physical objects. Large physical objects, like buildings and industrial equipment, are non-current assets. Another common type of non-current asset is intellectual property, like patents or copyrights. Patents and copyrights cannot be exchanged quickly or easily, making them illiquid. Another common type of non-current asset is investments. Investments require several steps for the value they represent to become liquid.
Where are Non-Current Assets Recorded?
Accountants record non-current assets on the balance sheet. Non-current assets are recorded by accountants on the balance sheet each year. The balance sheet includes non-current assets recorded at their current price. The current price of the non-current assets recorded on the balance sheet is determined by the market value of the non-current assets recorded on the balance sheet. The market value of the non-current assets recorded on the balance sheet is determined by accountants and is included on the balance sheet each year.
Where do Non-Current Assets Go on a Balance Sheet?
The balance sheet includes entries for the three main categories of non-current assets. The three main categories of non-current assets are fixed assets, intangible assets, and long-term investments. Fixed assets are large physical objects owned by the company. Intangible assets are non-physical assets, like patents or copyrights, owned by the company. Long-term investments are investments that are expected to be held by the company for an extended period of time. See the related article What is a Balance Sheet?
What are the categories of Non-Current Assets?
The following is a list of the categories of non-current assets.
- Tangible Assets: Large physical objects are called tangible assets. Tangible assets cannot be easily converted into another kind of asset.
- Intangible Assets: Assets that exist only in the mind are called intangible assets. Intangible assets cannot be easily converted into other kinds of assets.
- Natural Resources: Assets that have yet to be refined are called natural resources. Natural resources cannot be easily converted into other assets.
1. Tangible Assets
Tangible assets are assets that are large physical objects. Large physical objects include buildings and industrial equipment. Buildings and industrial equipment cannot be easily traded for other assets, due to their size. Assets that cannot be easily traded for other assets are illiquid. Illiquid assets are non-current. Tangible assets are non-current assets.
2. Intangible Assets
Intangible assets are assets that exist only in the human mind. Assets that exist only in the mind include things like patents and copyrights. Patents and copyrights cannot be easily exchanged for other assets. Assets that cannot be easily exchanged for other assets are illiquid. Illiquid assets are non-current. Intangible assets are non-current assets.
3. Natural Resources
Natural resources are assets that exist in a relatively unrefined form. Assets that exist in a relatively unrefined form cannot be easily exchanged for other assets. Assets that cannot be easily exchanged for other assets are illiquid. Illiquid assets are non-current. Natural resources are non-current assets.
How are Non-Current Assets Calculated?
Non-current assets are calculated in several ways. The way in which a non-current asset will be calculated depends on the type of asset it is. Tangible assets can be calculated in the following way.
- Determine the total cost of the intangible asset, for example, industrial equipment costing $200,000.
- Determine the residual value of the asset, for example, $40,000.
- Add the total cost to the residual value to get the net value of the asset, here $240,000.
- Estimate the amount of value the asset loses each year due to depreciation, say 10% for example.
- Each year, subtract 10% of the value from the net value. In the first year, the asset will lose 10%, or $24,000. The net value after the first year will be recorded as $216,000.
- Every subsequent year, 10% of the initial net value is subtracted from the net value recorded at the end of the previous year. After the second year, another $24,000 is subtracted from the net value recorded at the end of the previous year, $216,000, giving $192,000.
How are Non-Current Assets Accounted for?
Non-current assets are accounted for by adding a debit to the account. The debit for a non-current asset is offset by a credit. The credit that offsets the debit is added to the bank account. Credit is added to the account when all or part of a non-current asset is sold. The credit that is added to the account when all or part of a non-current asset is sold is offset by a debit to the bank account.
Are Non-Current Assets Fixed Assets?
Fixed assets are one type of non-current asset. Fixed assets are things like buildings, equipment, and land. Buildings, equipment, and land are also called “tangible assets”. Fixed assets are difficult to trade for other kinds of assets. Assets that are difficult to trade for other assets are non-current assets. Fixed assets are a type of non-current asset.
What is the Difference between Current and Non-Current Assets?
The difference between current and non-current assets relates to the ease with which these different kinds of assets can be traded for other assets. Current assets are liquid. Liquid assets may easily be traded for other assets. Non-current assets are illiquid. Illiquid assets cannot be easily traded for other assets.
