Guide to Non-current Asset

Guide to Non-current Asset

In terms of financial accounting (Also see Lesson for Financial Accounting), a non-current asset is an asset which you do not expect to consume it in a year. If a firm possesses a higher proportion of non-current assets when compared to its current assets, this may indicate that the firm has poor liquidity, as it is using a substantial amount of cash in supporting investments in non-cash assets which are in progress.

Some of the non-current assets, for example, land, may possess extensive useful lives theoretically. One should record a non-current asset as an asset when he incurs it, instead of charging them to expense straight away. On the balance sheet, one may use amortization, depreciation (Also see Impairment versus Depreciation of Fixed Assets) or depletion to decrease the value of a non-current asset slowly.

For a capital-intensive sector, for instance, automobile manufacturing, the assets of the business may mostly be the non-current assets. On the contrary, a company which offers services to its customers may only need a small amount of fixed assets, and it may possess little to none non-current assets.

You may aggregate non-current assets into a few different line items on your balance sheet, and you can list them after all current assets. Yet, you need to ensure that you record them before equity and liabilities.

Some instances of non-current assets include tangible fixed assets (for example, inventory, equipment, machinery, etc.), intangible fixed assets (for example, copyrights, goodwill, trademarks, etc.), long-term investments, as well as cash surrender value for life insurances.

You may face more risks which are associated with non-current assets, whereas for current assets, the risks are relatively lower. This is because, throughout their extended holding periods, their values may drop. If the non-current asset experiences a substantial amount of decrease in its value, such a situation may result in an impairment charge (Also see Tips on How to Sort Out Your Chaotic Finances). 

If you find it challenging to identify what non-current assets you possess in your business and are unable to handle accounting tasks associated with it, you may hire an accounting firm in Johor Bahru to help you out. Properly managing your assets is vital as it often has a close relationship with the finances of your business.