Reviewed by Aug 27, 2020| Updated on
What is a Noncurrent Asset?
A company's long-term investments for which full value will not be realised within the accounting year is known as noncurrent assets. Intellectual property, plant, equipment, physical property, and investment in other companies are a few examples of noncurrent assets. They are recorded in the company's balance sheet.
Noncurrent assets are capitalised rather than expenses, i.e. the cost of the asset will be allocated over a number of years through which the asset will be used instead of allocating the entire cost of the asset to the year in which it was purchased. Based on the type of asset, it will be categorised as depreciated, amortised, or depleted.
Classifying Noncurrent Assets
There are different classifications seen in the assets section of the balance sheet—current assets, PP&E, and other assets. Here, short-term assets that are convertible to cash within a year or within one operating cycle are labelled as current assets. Examples are accounts receivable, cash, and inventory.
Noncurrent assets are usually classified under one of the following labels—property, plant, and equipment (PP&E); investments; intangible assets; or other assets. Investment is classified as a noncurrent asset only if they cannot be converted into unrestricted cash within the next 12 months.
PP&E are fixed assets that include land, buildings, machinery, and vehicles. Further, intangible assets are items that have no physical presence; they may arise from the sale or purchase of business units.
The cash surrender value of life insurance can be categorised as other noncurrent assets. Similarly, a bond sinking fund established for the future payment of a debt, deferred income taxes, trademarks, goodwill, and unamortised bond issue costs are all noncurrent assets.