What Are Noncurrent Assets?

What Are Noncurrent Assets?

Let me explain noncurrent assets directly: these are investments your company makes that you plan to hold onto and use for many years. They're not the kind of assets you can quickly turn into cash—they're illiquid by nature.

You'll see them listed separately from current assets on your balance sheet. Common examples include equipment, intellectual property, and real estate.

Key Takeaways

Noncurrent assets fit into three broad categories: tangible assets, intangible assets, and natural resources. Think of your company's plant and equipment, intellectual property, real estate, or machinery as prime examples.

We also call them long-term assets, and their costs get spread out over the years they're in use through processes like depreciation or amortization.

Understanding Noncurrent Assets

On your company's balance sheet, assets split into noncurrent and current categories. Noncurrent assets, or long-term assets, get capitalized, meaning you allocate their cost over the years they'll be useful, not all at once in the year you buy them. Depending on what they are, you might depreciate, amortize, or deplete them.

The balance sheet organizes assets by type. Current assets come first—these are short-term ones you can turn into cash within a year or an operating cycle, like cash, accounts receivable, or inventory. Noncurrent assets follow, grouped under investments, property, plant, and equipment, intangible assets, or other assets.

Property, plant, and equipment—often just called fixed assets—include things like land, buildings, machinery, and vehicles. Remember, investments count as noncurrent only if you don't expect them to become unrestricted cash within 12 months from the balance sheet date.

All noncurrent assets, whether tangible, intangible, or natural resources, benefit your company for more than a year. That's different from current assets, which you can sell, use, or exhaust in standard operations within a year, such as inventory or accounts receivable.

Tangible assets are physical items your company owns, like real estate and equipment—they're essential for producing products and services. Intangible assets lack physical form but can come from creations like patents or from buying business units. Natural resources are earth-derived, including fossil fuels and timber.

Examples of Noncurrent Assets

Fixed assets like property and equipment are classic noncurrent assets. You might also have long-term investments in bonds, real estate, or other companies. Intangible ones include trademarks, client lists, and goodwill from mergers or acquisitions.

In capital-intensive industries, like oil refining, a big chunk of the asset base is noncurrent. Service businesses, on the other hand, might not rely much on fixed assets. A high ratio of noncurrent to current assets could signal poor liquidity, but it often just reflects the industry's norms.

Other examples include the cash surrender value of life insurance, bond sinking funds for debt repayment, some deferred income taxes, and unamortized bond issue costs. Even prepaid assets can be noncurrent if the benefit extends beyond a year—for instance, if you prepay 24 months of rent, the second year's portion is noncurrent.

What Are the Different Types of Noncurrent Assets?

As I mentioned, noncurrent assets divide into tangible, intangible, and natural resources. Tangible ones are physical, like real estate and equipment owned by your company. Intangible assets have no physical presence, such as patents, and can arise from sales or purchases of business units. Natural resources come from the earth, like fossil fuels and timber.

How Are Noncurrent Assets Accounted For?

You capitalize noncurrent assets, spreading their cost over their useful life instead of expensing everything in the purchase year. They could be depreciated, amortized, or depleted based on the asset type. On the balance sheet, they show up under investments, property, plant, and equipment (PP&E), intangible assets, or other assets.

What Is the Difference Between Current and Noncurrent Assets?

Current assets are short-term; you can generally convert them to cash within your firm's fiscal year, and they're vital for daily operations. They're reported at current or market price on the balance sheet. Noncurrent assets are long-term investments for your business's ongoing needs, with full value not realized in the accounting year. They're highly illiquid, hard to convert to cash quickly, and get capitalized for accounting.