Noncurrent asset definition
/What is a Noncurrent Asset?
A noncurrent asset is an asset that is not expected to be consumed within one year. These assets are intended to provide value for the organization for an extended period of time. It may be difficult to convert noncurrent assets into cash, so a business needs to be judicious in investing in these types of assets, or else it may end up having liquidity problems, since a large amount of cash may be needed to support ongoing investments in noncash assets.
In a capital-intensive industry, such as oil refining, a large part of the asset base of a business may be comprised of noncurrent assets. Conversely, a services business that requires a minimal amount of fixed assets may have few or no noncurrent assets.
Accounting for Noncurrent Assets
Some noncurrent assets, such as land, may theoretically have unlimited useful lives. A noncurrent asset is recorded as an asset when incurred, rather than being charged to expense at once. Depreciation, depletion, or amortization may be used to gradually reduce the amount of a noncurrent asset on the balance sheet.
There is more risk associated with noncurrent assets than with current assets, since they may decline in value during their extended holding periods. An excessive amount of reduction in value may lead to an impairment charge.
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Presentation of Noncurrent Assets
Noncurrent assets are aggregated into several line items on the balance sheet, and are listed after all current assets, but before liabilities and equity. A sample presentation of noncurrent assets on a balance sheet appears in the following exhibit.
Examples of Noncurrent Assets
Examples of several types of noncurrent assets are noted below.
Cash surrender value of life insurance. This can be a substantial amount, if the entity has been paying into one or more life insurance policies for an extended period of time.
Long-term investments. These tend to be assets that cannot be easily sold off, such as an investment in an apartment building or a shopping mall.
Intangible fixed assets. These are non-tangible assets, such as patents and copyrights.
Tangible fixed assets. These are the most common fixed assets, such as buildings, machinery, furniture and fixtures, computer equipment, and vehicles.
Goodwill. This is the excess amount paid by an acquirer over the fair value of the assets and liabilities of the acquiree being purchased.
The Difference Between Current and Noncurrent Assets
Current assets must be convertible into cash within the next 12 months, while there is no expectation for noncurrent assets to be liquidated within that period of time. Also, most current assets are valued at their market values on the balance sheet, whereas noncurrent assets are generally valued at their acquisition cost. Another difference is that current assets are usually convertible into cash, while noncurrent assets may only be convertible into cash at a steep discount.