What are 'Noncurrent Assets'
Noncurrent assets are company long-term investments where the full value will not be realized within the accounting year. Examples of noncurrent assets include investments in other companies, intangible assets such as goodwill, brand recognition and intellectual property, and property, plant and equipment. Noncurrent assets appear on the company's balance sheet.
BREAKING DOWN 'Noncurrent Assets'
Noncurrent assets are also referred to long-term assets. Noncurrent assets are capitalized rather than expensed, meaning that the company allocates the cost of the asset over the number of years for which the asset will be in use instead of allocating the entire cost to the accounting year in which the asset was purchased. Depending on the type of asset, it may be depreciated, amortized or depleted. However, these are all just technical terms for allocation in which the value of the noncurrent asset is reduced on the balance sheet and an expense is recognized.
Balance Sheet Classification
Noncurrent assets are always classified on the balance sheet under one of the following headings: investments, property, plant and equipment, intangible assets or other assets. Investments are classified as noncurrent only if they are expected to not turn into unrestricted cash within the next 12 months of the balance sheet date. Property, plant and equipment encompass land, buildings, and machinery including vehicles. Property, plant, and equipment may also be called fixed assets. Finally, intangible assets are goods that do not have a physical presence and may not be touched. Although they may be created, such as a patent, intangible assets may also arise from the sale or purchase of business units.
Other Noncurrent Assets
Other noncurrent assets include the cash surrender value of life insurance. A bond sinking fund established for the future repayment of debt is classified as noncurrent asset. Some deferred income taxes, goodwill, trademarks, and unamortized bond issue costs are classified here as well.
Prepaid assets may be classified as noncurrent assets if the future benefit is not to be received within one year. For example, if rent is prepaid for the next 24 months, 12 months is considered a current asset as the benefit will be used within the year. The other 12 months are considered noncurrent as the benefit will not be received until next year.
Noncurrent Assets Between Industries
It is not uncommon for capital-intensive industries to have a large part of their asset base comprised of noncurrent assets. An example of such a company is an oil refinery. Conversely, service businesses may require minimal to no use of fixed assets. Therefore, while a high proportion of noncurrent assets to current assets may indicate poor liquidity, this may also simply be a function of the respective company’s industry.