Non-Current Assets: Definition, Types & Example

KEY TAKEAWAYS

• Non-current assets are a business’s long-term investments.
• Assets are recorded on a company’s balance sheet.
• These types of assets cannot easily be converted into cash and are not expected to become cash within one accounting year. 
• There are three major categories that non-current assets fall into. These are tangible assets, intangible assets, and natural resources.

What Are Non-Current Assets?

Non-current assets are a business’s long-term investments. They are benefits that will be realized over the span of more than one accounting year and are known to be highly illiquid. This means that these assets cannot be easily liquidated and turned into cash. 

These assets are recorded on a company’s balance sheet at acquisition cost. They include a long-term asset such as property, plant, and equipment. It also includes intangible assets, intellectual property, and other such long-term assets. You can also consider the cash surrender value of life insurance as a noncurrent asset. 

Non-current assets can be considered the polar opposite of current assets, such as accounts receivable and inventory.

What Are the Types of Non-Current Assets?

There are three main categories of non-current assets.

1. Tangible Assets

A tangible asset refers to any asset with a physical form or a property that is owned by a company and is a part of its main core operations. A tangible asset’s value is recorded as the value of the original acquisition cost, minus any accumulated depreciation. 

Assets such as land are held at cost, even though they can actually appreciate in value. 

2. Intangible Assets

This type of asset is something that lacks a physical form but still offers economic value to the business. 

A business can purchase or otherwise acquire an intangible asset from outside of the business. Or you can create them from within the business. Any asset created by the business won’t have a measurable value, as it’s unique to the business itself and lack of market value for evaluation. If the financial value is not measurable, it can’t be recorded on the balance sheet per accounting standards.

Intangible assets can either be definite or indefinite. An indefinite intangible asset remains for as long as the company is in business. Whereas a definite intangible asset only stays with the company for the duration of a contract or an agreement.

3. Natural Resources

Natural resources are assets that occur naturally. This could be things such as fossil fuels, oil, minerals, or timber. 

These natural resources must be consumed through extraction from the natural settings, taken from the earth. So for example, natural gas must be extracted from the ground in order to be used.

Natural assets are recorded on the balance sheet at the cost of purchase plus any development or exploration costs. The accumulated depletion is then subtracted.

What Are Some Examples of Non-Current Assets?

1. Long-Term Investments

A company’s long-term investment is one of the more common non-current assets. These include things such as bonds, and notes that an investor may buy in the hope they will appreciate in value. These are recorded in the company’s balance sheet as a part of their financial statements.

2. Goodwill

Goodwill is an intangible asset. It is created when one business purchases another. It generates when the price that is paid for the company goes over the fair value of all of the identifiable assets and liabilities. 

Goodwill is for intangible assets such as company reputation and brand name. It also refers to customer base, employees, and customer relations.

Summary

It’s vital that business owners understand what a non-current asset is. Being able to distinguish between current and noncurrent assets lends a deeper understanding of the inner workings of your business.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.

Written by Jami Gong, MPAcc, CPA

Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields.