Non-current assets

Definition

Non-current assets, also known as long-term assets or fixed assets, are a category of assets listed on a company’s balance sheet. They represent valuable resources that are expected to provide economic benefits to the company for more than one year.

What are non-currents assets?

Non-current assets play a crucial role in a company’s operations and are typically essential for its long-term success. 

Non-current assets can be broadly categorised into two main types: 

1. Tangible assets: These have a physical form and can be touched or seen. Examples include property, plant, equipment, vehicles, and machinery.
2. Intangible assets: These lack a physical presence but hold significant value for a company. Examples include patents, copyrights, trademarks and goodwill.

Tangible non-current assets are subject to depreciation, which reflects the gradual reduction in their value over time. Intangible assets are typically amortised, which is the process of allocating the cost of the asset over its useful life.

Non-current assets can serve two primary purposes:

1. Investment: They can be assets held for capital appreciation or for generating rental income. 
2. Production: These assets are used in the production or provision of goods and services. 

Non-current assets are recorded on the balance sheet at their original cost. Over time, their value may be adjusted through depreciation, impairment, or revaluation. If there is a significant decline in the value of a non-current asset below its carrying amount and this decline is expected to be permanent, the asset is said to be impaired. In such cases, the asset is written down to its recoverable amount.

Companies are required to disclose detailed information about their non-current assets in their financial statements. This includes the type of assets, their carrying amounts, any accumulated depreciation or amortisation, and any impairment losses.

Example of a non-current asset

Let’s consider a manufacturing company called “Tech Machinery Inc.” that purchases a piece of equipment to be used in its production process. The equipment has a useful life of 10 years and is expected to generate value for the company over multiple accounting periods.

In this example, the equipment purchased by Tech Machinery Inc. would be classified as a non-current asset on the company’s balance sheet. This is because the equipment is not intended for immediate sale, but rather for long-term use in the company’s operations.