Noncurrent asset
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Noncurrent assets, also known as long-term assets, are tangible and intangible assets that are not expected to be used up or converted into cash within the next year or business cycle. Examples of noncurrent assets include land, buildings, machinery, long-term investments, patents, and trademarks.
Noncurrent assets are the opposite of current assets, which are assets that can be used up or converted into cash in the next year or business cycle, such as cash, accounts receivable, inventory, and prepaid expenses.
Noncurrent assets have several distinguishing characteristics. First, they have a long-term life span and are used over an extended period of time. Second, they are used as part of a company's ongoing operations, not as a short-term strategy. Third, they are not expected to be converted into cash in the near term, although they may be sold or exchanged in the future. Finally, they are not easily traded or converted into cash.
Noncurrent assets have several important functions within a company. First, they provide a company with the capacity to produce goods and services. Second, they can increase a company's value by generating income or appreciation in value. Third, they can help a company to diversify its operations, as well as provide a hedge against inflation. Finally, they can provide a company with a source of collateral for borrowing money.
Example of Noncurrent asset
Noncurrent assets are tangible and intangible assets that are not expected to be used up or converted into cash within the next year or business cycle. Examples of noncurrent assets include land, buildings, machinery, long-term investments, patents, and trademarks.
Land and buildings are physical assets that are used for production or long-term storage of goods. Machinery and equipment are used to manufacture products or provide services. Long-term investments are investments in stocks, bonds, and other financial instruments that are held for longer than a year. Patents are intellectual property rights granted by the government that give exclusive rights to the inventor to produce and sell the patented product or process. Trademarks are a type of intellectual property that identifies a product or service as being from a specific source.
When to use Noncurrent asset
Noncurrent assets should be used when a company needs to purchase an asset that will be used over an extended period of time, such as land, buildings, machinery, long-term investments, patents, and trademarks. They can also be used to generate income or appreciate in value, diversify operations, and provide a source of collateral for borrowing money. Noncurrent assets are not suitable for short-term strategies or for assets that are expected to be converted into cash in the near term.
Types of Noncurrent asset
Noncurrent assets can be divided into two main categories: tangible and intangible. Examples of tangible noncurrent assets include land, buildings, machinery, equipment, and investments. Intangible noncurrent assets include patents, trademarks, copyrights, and goodwill.
Tangible noncurrent assets are physical items such as land, buildings, and machinery. These assets provide a company with the capacity to produce goods and services, and can generate income or appreciation in value over time. Intangible noncurrent assets are intellectual property such as patents, copyrights, and trademarks. These assets provide a company with exclusive rights to produce or sell a certain product or service, and can help to diversify a company's operations.
Advantages of Noncurrent asset
Noncurrent assets have several advantages for businesses. First, they can generate income and appreciation in value over time. Second, they can provide a hedge against inflation. Third, they can provide collateral for borrowing money. Fourth, they can help diversify operations and reduce risk. Finally, they can provide a company with the capacity to produce goods and services.
The advantages of noncurrent assets are clear. They can help generate income and appreciation in value, provide a hedge against inflation, serve as collateral for borrowing money, diversify operations and reduce risk, and provide the capacity to produce goods and services. This makes them an important part of any business's long-term strategy.
Limitations of Noncurrent asset
Noncurrent assets have several limitations that companies should be aware of. First, they can be expensive to acquire, maintain, and replace. Second, they may be subject to obsolescence or depreciation, which can reduce their value over time. Third, they may be illiquid and difficult to convert into cash. Finally, they may require a significant amount of management and monitoring to ensure they are used efficiently and provide a return on investment.
Noncurrent assets are also managed through several different approaches, such as depreciation, amortization, and impairment.
Depreciation is the process of allocating the cost of a noncurrent asset over its useful life. It is commonly used to spread out the cost of a noncurrent asset over the years it is used, and is determined by the asset's expected useful life, salvage value, and the method of depreciation chosen.
Amortization is the process of spreading out the cost of an intangible asset, such as a patent or a trademark, over its useful life. It is determined by the asset's expected useful life and the method of amortization chosen.
Impairment is the process of recognizing a decrease in the value of a noncurrent asset due to changes in market conditions or other factors. When a noncurrent asset is impaired, the carrying value of the asset is reduced to reflect its current market value.
Suggested literature
- Black, E. L., Sellers, K. F., & Manly, T. S. (1998). Earnings management using asset sales: An international study of countries allowing noncurrent asset revaluation. Journal of Business Finance & Accounting, 25(9‐10), 1287-1317.
