Non-current assets are assets other than the current assets. While current assets are assets which are expected to be converted to cash within the next 12 months or within normal operating cycle of a business. In other words, these are assets which are expected to generate economic benefits over more than one year.
Classification of assets into current and non-current is important because non-current assets are illiquid, i.e. they cannot be easily converted to cash or cash equivalents. Information about how quickly assets can be converted to cash is important for useful liquidity analysis. Secondly, since non-current assets are expected to generate economic benefits over multiple periods, they must be depreciated over their useful lives.
A classified balance sheet shows non-current assets separately from current assets.
Following is a list of typical non-current assets:
- Intangible assets
- Property, plant and equipment
- Long-term investments
- Long-term notes receivable
- Long-term deposits/advances, etc.
Non-current assets are also called long-term assets, long-lived assets, etc.
Intangible assets and property, plant and equipment are collectively called fixed assets.
Intangible assets are those fixed assets that have no physical existence, such as patents, copyrights, goodwill, etc.
Intangible assets are recognized at fair value when they are acquired and amortized over their useful lives except goodwill which has unlimited useful life. They are periodically tested for impairment.
Property, Plant and Equipment
Property, plant and equipment (also called tangible fixed assets) are those fixed assets that have some physical existence. They are grouped into different classes such as land, land improvements, buildings, vehicles, etc. based on their function and depreciated over their useful lives except land which has unlimited useful life (unless it is a land obtained on lease). Property, plant and equipment are presented on balance sheet net of accumulated depreciation and accumulated impairment losses.
Long-term investments are investments which are not expected to be realized (sold or otherwise converted to cash) within next 12 months. These include investments in common stock of companies, purchases of bonds issued by companies, etc.
Prepare the assets section of a classified balance sheet of MNO, Inc. as at 30 June 2015 based on the information given below:
- Fixed assets cost of $220 million, accumulated depreciation of $60 million and accumulated impairment losses of $5 million
- Software of $20 million written down value
- Goodwill of $30 million, impaired to the extent of $5 million
- Accounts receivable $15 million
- Inventories of $25 million (including $2 million which are stores and spares of machinery)
- Prepayments of $15 million on account of rent of factory premises
- Advances made to employees on long-term basis of $10 million (of which $2 million is due within 12 months)
- Investments made of $20 million ($10 million are held to maturity investments, which is 2020, $5 million are marketable securities that meet the definition of cash equivalents, the rest are short-term investments)
- Cash of $12 million
|as at 30 June 2015|
|ASSETS||Note||$ in million|
|Other intangible assets||b||20|
|Property, plant and equipment||c||157|
|Total non-current assets||220|
|Cash and cash equivalents||k||17|
|Total current assets||77|
- Goodwill total recognition value of $30 million minus $5 million impairment losses
- Software with written down value (WDV) of $20 million
- Property, plant and equipment (PPE) cost of $220 million minus accumulated depreciation of $60 million and impairment losses of $5 million plus stores and spares of PPE of $2 million.
- $10 million held to maturity investments which are due to mature in 2020 and hence they are non-current assets.
- Advances of long-term nature made to employees: $10 million less $2 million due in 12 months.
- $15 million prepayment is a current asset.
- $2 million short-term portion of long-term advances made to employees.
- $25 million inventories total cost less $2 million included in property, plant and equipment
- $15 million receivables
- Total investments of $20 million less $10 million held to maturity investments less $5 million included in cash and cash equivalents.
- Cash of $12 million plus $5 million marketable securities that meet definition of cash equivalents.
Written by Obaidullah Jan, ACA, CFA