Definition
A Noncurrent Asset is an asset that is not anticipated to be converted into cash, sold, or exchanged within the typical operating cycle of a company, which is generally one year. These assets are typically used in the operations of a business and can assist in producing revenue over the long-term.
Examples of Noncurrent Assets
- Fixed Assets: Examples include real estate, machinery, and equipment used in production.
- Intangible Assets: Examples encompass goodwill, patents, trademarks, and intellectual property rights.
- Long-term Investments: Investments in other companies or bonds that are intended to be held for more than one year.
- Deferred Tax Assets: Taxes paid in advance or overpaid taxes that can be used to reduce tax liability in future tax periods.
Frequently Asked Questions (FAQ)
What is the difference between current and noncurrent assets?
Current assets are expected to be converted into cash, sold, or exchanged within one year or one operating cycle, whichever is longer. Examples include accounts receivable and inventory. Noncurrent assets, on the other hand, are used over a longer period and are not easily liquidated within a year.
How are noncurrent assets reported on the balance sheet?
Noncurrent assets are typically listed under the section titled “Noncurrent Assets” or “Fixed Assets” on a company’s balance sheet. They are often broken down into subcategories like property, plant, and equipment (PP&E), intangible assets, and long-term investments.
What is depreciation, and how does it relate to noncurrent assets?
Depreciation is the gradual reduction in the value of a fixed asset over its useful life. Noncurrent assets, except land, typically undergo depreciation. This process accounts for wear and tear or obsolescence and is recorded as an expense on the income statement.
Can noncurrent assets be revalued?
Yes, businesses can revalue noncurrent assets to reflect current market conditions. This revaluation must be done in accordance with relevant accounting standards and can result in adjustments to both the asset’s book value and accumulated depreciation.
Why are noncurrent assets important to a business?
Noncurrent assets are essential for the long-term operational capabilities of a business. They often provide the necessary infrastructure and tools to produce goods or offer services, contributing to the business’s revenue generation over several years.
Related Terms with Definitions
- Fixed Assets: Long-term tangible assets used in the daily operations of a business, such as buildings, machinery, and equipment.
- Intangible Assets: Non-physical assets like patents, trademarks, copyrights, and goodwill, providing long-term value to a business.
- Depreciation: An accounting method that allocates the cost of a tangible asset over its useful life.
- Amortization: The process of gradually expensing the cost of an intangible asset over its useful life.
- Property, Plant, and Equipment (PP&E): A category of tangible noncurrent assets critical for operations.
Online Resources
- Investopedia: Noncurrent Assets
- AccountingTools: Noncurrent Asset
- Financial Accounting Standards Board (FASB)
Suggested Books for Further Studies
- “Financial Accounting” by Robert Libby, Patricia A. Libby, and Daniel G. Short
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
- “Financial Accounting: An Introduction to Concepts, Methods and Uses” by Roman L. Weil, Katherine Schipper, and Jennifer Francis
Fundamentals of Noncurrent Asset: Financial Accounting Basics Quiz
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