December 19, 2019

Explain Non-Current Assets with Examples

December 19, 2019

Assets are valuable resources of any company. They are categorized into current assets and non-current assets. Current assets are those that can be converted into cash quickly (within a year). Non-current assets are those that cannot be converted into cash quickly. They are hold by companies for more than one year. They appear on company’s balance sheet. Non-current assets include:

Non-Current Assets

Property, plant and equipment
Long term investments
Intangible assets

Property, Plant and Equipment

Property, plant and equipment are fixed assets (non-current assets) which have physical existence. They are expected to generate economic benefits for the firm over more than one year.

Property: land, building and other types of premises.
Plant: heavy machinery that is used for production of goods.
Equipment: computer, printer and other office equipment.

International Accounting Standards (IAS) 16 defines property, plant and equipment:

Property, plant and equipment are tangible items that are held for:

1.       Production or supply of goods or services.
2.       Rental to others.
3.       Administrative purposes.
4.       Are expected to be used during more than one accounting period. 

Long Term Investments (Financial Assets)

Long term investments are assets that are hold for more than one year. They are presented on asset side of the balance sheet under the head non-current assets. Following are common examples of long term investments:

Stocks: A stock which is also known as shares represent ownership in the issuing company. Stock or shares can be bought and sold on stock exchange. A person who owns shares of the company is called shareholder. The shareholder has the ownership of the company proportional to his share.

Bonds: A bond is a fixed income investment that represents loan made by an investor to a borrower. Generally, the borrower is corporation or government. The borrower (bond issuer) is obligated to pay a specified amount of money at specified future date.

Intangible Assets

Intangible assets don’t have physical existence. In other words, they cannot be seen or touched but they have value. Some common examples of intangible assets are:

Goodwill: When one company acquires another company by paying extra amount as premium for brand name, that premium amount is known as Goodwill. The Goodwill is only recorded in the balance sheet when one firm acquires another firm or two firms complete a merger. 

Patent:   A patent is a right granted to an inventor by the federal government that permits the inventor to exclude others from making, using or selling the invention for a specified period of time. The application is given by the inventor to the federal government for approval of patent.

Copyright: Copyright is a legal right to provided by the law to protect the original work of creator including poetry, novels, songs, movies, dramas, music, computer program and literary work.

Trademark: A trademark is a symbol, design, word or phrase that identifies the product or service and distinguishes it from other products or services. For example, the word “Pepsi” is a trademark. 

Franchise: A franchise is a license given by an organization to someone allowing him to sell its goods or services. Generally, the franchisee pays the franchisor an initial start up fee and annual licensing fee. The common example of franchise business is “McDonald's”.   
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