Nonmonetary assets

From CEOpedia | Management online

Nonmonetary assets are assets for which is not possible to establish monetary value. Some assets are not able on the market, they could be created by the company and never put on the market. Thus their monetary value can be only estimated. They usually are also hard to convert into cash in case of problems with financial liquidity.

Most common nonmonetary assets are:

  • intangible assets
  • copyrights
  • patents created by the company
  • goodwill
  • some types of properties
  • some types of equipment or inventory

In some cases it is not clear whether the asset is monetary or nonmonetary asset. The most common criteria is whether the asset can be cashed in short time.

Companies can also have nonmonetary liabilities, e.g. warranty service of company products. It is unknown how many products will break in future and thus how much will the service cost. Some statistical analysis can help estimate those costs.

Intangible assets

Intangible and legal assets - are defined as property rights acquired by an entity, classified as non-current assets, which are suitable for economic use. The planned period of their use should exceed one year[1].

Intangible assets we can divide[2]:

  • proprietary copyrights, concessions, licenses, related rights
  • rights to inventions, patents, trademarks, utility and decorative designs
  • know-how
  • purchased goodwill
  • research and development costs

Intangible assets are characterized by[3]:

  • were acquired,
  • they are suitable for commercial use from the day of their acceptance
  • they have an anticipated period of use longer than one year,
  • they are used by the taxpayer for purposes related to his business activity

Depreciation a of intangible assets

Depreciation are made from the initial value of intangible assets. Charges should be made after the introduction to the register of intangible assets. The asset must be register no later than in the month of its transfer to using. Depreciation write-offs are made using depreciation rates specified in the Depreciation List or depreciation methods which company chose[4].

Copyright - refers to legal right of the owner of the intellectual property. This is a confirmation from the creator of a product, services - authorization to using his work. The person, company who buy copyright can exploitation of the work and deriving financial benefit from it.

Copyrights are used to protect[5]:

computer software, graphic designs, arts, poetry, novels, film, original architectural designs, musical lyrics and compositions website content

A patent is one of the form of intellectual property. A patent gives to the owner to exclude others from using, selling, making an invention for a limited period of time. A patent is granted to an inventor by the government. Kind of invention: machine, software, medicines. Patents are assets with an economic value. A patent is a very important protection tool used by enterprises in business. It Supports achieving a competitive advantage in the market.

Goodwill - it is a part of values of company. This is the difference between the purchase price and the fair value of the acquired net assets. Goodwill contributes to the growth of the market value of the entire enterprise.

We can distinguish[6]:

  • badwill - if the purchase price is lower than fair valued of the acquired assets
  • goodwill - if the purchase price is higher than fair valued of the acquired assets

Characteristics of non monetary assets

  • Non-monetary assets which change during a time and liquidity is limited.
  • This type of assets can losing value as the technology becomes obsolete.
  • To Non-monetary assets include fixed assets, such as property, plant and equipment, intangible assets, goodwill but also different unobvious positions.
  • To Non-monetary liabilities we can include assets whose are not payable in cash. For example, when company can provide warranty services on its products.
  • The value of the non-cash object can change over time. For example, (assets can loses its value over time). Also inflation can lower the value of the non-cash item.
  • Supply and demand (situation in the market) can affect the value of non-monetary. For example, (if competitors lower the selling price of a product, the value of the company's stock will also decrease)[7].

Examples of Nonmonetary assets

  • Intellectual Property: This includes trademarks, trade secrets, copyrights, and patents. These are intangible assets that are not easily converted into cash, but can represent significant value to a company. For example, Apple Inc. holds several patents and trademarks on its products such as the iPhone and iPad.
  • Goodwill: This is an intangible asset that reflects the value of a company's reputation, customer loyalty, and brand recognition. It is not easy to convert into cash, but it can provide a company with a competitive advantage. For example, McDonald's has built up goodwill over the years as a result of its well-known brand and customer loyalty.
  • Customer Relationships: This is the value of a company's relationships with its customers. It is not easy to convert into cash, but it can provide a company with a competitive advantage. For example, Amazon has built up customer relationships over the years as a result of its online retail platform and customer service.
  • Human Resources: This is the value of a company's employees and the skills they bring to the organization. It is not easy to convert into cash, but it can provide a company with a competitive advantage. For example, Google has built up human resources over the years as a result of its ability to attract and retain top talent.

Advantages of Nonmonetary assets

Nonmonetary assets have many advantages. These include:

  • They are not affected by the fluctuating prices of the stock market. This makes them a reliable asset in terms of long-term value.
  • They often represent a company’s future potential and are therefore an important asset to have.
  • Nonmonetary assets are often not publicly traded, making them difficult to quantitatively value. This makes them a great asset to own as they cannot be easily bought or sold.
  • They often represent intangible assets such as intellectual property and goodwill, which are difficult to quantify and are therefore not easily replicated.
  • Nonmonetary assets often have the potential to be converted into cash if needed, making them a great asset to have in case of financial trouble.

Limitations of Nonmonetary assets

A nonmonetary asset has many limitations that should be taken into consideration when assessing its value. These include:

  • Difficult to value: Nonmonetary assets are difficult to value as they do not have a market price and can only be estimated by the company.
  • Hard to convert into cash: Nonmonetary assets are not easy to convert into cash in the event of financial difficulties.
  • Not easily transferable: They are not easily transferable and cannot be bought or sold on the open market.
  • Time consuming to measure: Nonmonetary assets are time consuming to measure as there is no reliable value for them.
  • Limited liquidity: Nonmonetary assets have limited liquidity and cannot be quickly converted into cash if needed.
  • Difficulty in accessing capital: As they are not easily transferable, it is difficult to access capital from nonmonetary assets.

Other approaches related to Nonmonetary assets

Introduction: Nonmonetary assets can be classified according to different approaches.

  • Intangible Assets: These are assets that do not have a physical form and cannot be sold or exchanged on the market. Examples include patents, copyrights, trademarks, and brand names.
  • Fixed Assets: These are assets that are used for long-term purposes and are not intended for sale or exchange. Examples include buildings, equipment, and land.
  • Tangible Assets: These are assets that have a physical form and can be sold or exchanged on the market. Examples include cash, inventory, and investments.
  • Natural Assets: These are assets that are derived from natural resources and are not created or produced by humans. Examples include minerals, oil, and forests.

Summary: Nonmonetary assets can be classified according to different approaches such as intangible assets, fixed assets, tangible assets, and natural assets. Intangible assets are assets that do not have a physical form and cannot be sold or exchanged on the market, while fixed assets are assets that are used for long-term purposes and are not intended for sale or exchange. Tangible assets are assets that have a physical form and can be sold or exchanged on the market, and natural assets are assets that are derived from natural resources and are not created or produced by humans.


Nonmonetary assets — recommended articles
Physical asset — Depreciation vs. amortization — Strategic assets — Amortization of intangible assets — Classification of assets — Trading capital — Asset sales — Capital property — Asset based approach

References

Footnotes

  1. ↑ J.A. Cohen, (2011)
  2. ↑ J.A. Cohen, (2011)
  3. ↑ J.A. Cohen, (2011)
  4. ↑ L.R. Patterson, (1991)
  5. ↑ L.R. Patterson, (1991)
  6. ↑ L.R. Patterson, (1991)
  7. ↑ T. Bishop, (2012)

Author: Anna Klisiewicz

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