non-current assets

(noun)

Also known as fixed assets, a non-current asset is a term used in accounting for assets and property which cannot easily be converted into cash.

Related Terms

Examples of non-current assets in the following topics:

  • Types of Receivables

    • Receivables can be classified as accounts receivables, notes receivable and other receivables ( loans, settlement amounts due for non-current asset sales, rent receivable, term deposits).
    • Other receivables can be divided according to whether they are expected to be received within the current accounting period or 12 months (current receivables), or received greater than 12 months ( non-current receivables).
    • Since accounts receivable are generally collected within two months of the sale, they are considered a current asset.
    • The maturity date of a note determines whether it is placed with current assets or long-term assets on the balance sheet.
    • Notes that are due in one year or less are considered current assets, while notes that are due in more than one year are considered long-term assets.

  • Defining Long-Lived Assets

    • Long-lived assets are those that provide a company with a future economic benefit beyond the current year or operating period.
    • Assets are economic resources.
    • Long-lived assets provide a company with a future economic benefit beyond the current year or operating period.
    • Since non-current, or long-lived, assets are expected to last for longer than one year, accounting treats long-lived assets differently according to their useful life.
    • When assets are expected to contribute to earnings for multiple years, such assets are referred to as long-lived, non-current or long-term assets.

  • Impairment Recognition

    • Business assets should be tested for impairment when a situation occurs that causes the asset to lose value.
    • when an asset is badly damaged (negative change in physical condition)
    • the asset is set for disposal before the end of its useful life A loss on impairment is recognized as a debit to Loss on Impairment (the difference between the new fair market value and current book value of the asset) and a credit to the asset.
    • A loss on impairment is recognized as a debit to Loss on Impairment (the difference between the new fair market value and current book value of the asset) and a credit to the asset.The loss will reduce income in the income statement and reduce total assets on the balance sheet.
    • For an example, take a retail store that is recorded on the owner's balance sheet as a non-current asset worth USD 20,000 (book value or carrying value is USD 20,000).

  • Indefinite-Life Impairment

    • In accounting, intangible assets are defined as non-monetary assets that cannot be seen, touched or physically measured.
    • Since intangible assets are typically expensed according to their respective life expectancy, it is important to understand the difference between limited-life intangible assets and indefinite-life intangible assets.
    • Instead of amortization, indefinite-life assets are evaluated for impairment yearly.
    • An Impairment cost must be included under expenses when the carrying value of a non-current asset exceeds the recoverable amount.
    • The carrying amount is defined as the value of the asset as displayed on the balance sheet.

  • Goodwill Impairment

    • Goodwill is an intangible asset that is tested yearly for impairment; it is not amortized.
    • While goodwill is technically an intangible asset, it is usually listed as a separate item on a company's balance sheet .
    • Goodwill's value on the balance sheet is reported at net of accumulated impairment loss, a contra asset account; the current impairment loss is reported on the income statement.
    • An impairment cost must be included under expenses when the carrying value of a non-current asset on the balance sheet exceeds the asset's market value subtracted by any transaction costs (recoverable amount).
    • The carrying amount is defined as the value of the asset as it is displayed on the balance sheet.

  • Cost of Equipment

    • Fixed assets, also known as non-current or tangible assets, include property, plant, and equipment.
    • Fixed assets, according to International Accounting Standard (IAS) 16, are long range assets whose cost can be measured reliably.
    • Historical cost also includes delivery and installation of the asset, as well as the dismantling and removal of the asset when it is no longer in service.
    • Depreciation is a periodic reduction in an asset's value.
    • The cost of equipment includes all costs paid to put the asset into use.

  • Involuntary Conversion

    • Unlike a voluntary sale, involuntary conversion of assets can involve an asset exchange for monetary or non-monetary assets .
    • The gain or loss is the difference between the proceeds received and the book value of the asset disposed of, updated for current depreciation expense.
    • Non-monetary assets are not easily converted to cash, such as equipment.
    • An exchange between non-monetary assets should be analyzed to determine if the exchange has commercial substance.
    • For non-monetary asset exchanges without commercial substance, the expectation is that the exchange will not materially alter future cash flows.

  • Basic Components of Asset Valuation

    • Fair value is used in accordance with US GAAP (FAS 157), where fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties, or transferred to an equivalent party, other than in a liquidation sale.
    • However, when a business acquires plant assets in exchange for other non-cash assets (shares of stock, a customer's note, or a tract of land) or as gifts, it is more difficult to establish a cash price.
    • The general rule on non-cash exchanges is to value the non-cash asset received at its fair market value or the fair market value of what was given up, whichever is more clearly evident.
    • The book value of a fixed asset asset is its recorded cost less accumulated depreciation.
    • An old asset's book value is usually not a valid indication of the new asset's fair market value.

  • Terminology of Accounting

    • Two major asset classes are intangible assets and tangible assets.
    • Intangible assets are identifiable non-monetary assets that cannot be seen, touched or physically measured, are created through time and effort, and are identifiable as a separate asset.
    • Tangible assets contain current assets and fixed assets.
    • Current assets include inventory, while fixed assets include such items as buildings and equipment.
    • If liability exceeds assets, negative equity exists.

  • Return on Assets

    • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
    • The Return on Total Assets ratio is similar to the Asset Turnover Ratio in that both measure how effective a business's assets are in generating returns for the business.
    • But while the asset turnover ratio is focused on the business's sales, return on assets is focused on net income.
    • You calculate the average value of the total assets by adding the value of the business's total assets at the beginning of the period and the value of the business's total assets at the end of the period.
    • This is generally done by comparing the current return on assets ratio to the company's past performance or to a competitor's ratio.