What are Nonmonetary Assets?
Nonmonetary assets are items a company holds for which it is not possible to precisely determine a dollar value. These are assets whose dollar value may fluctuate and that changes substantially over time, such as equipment or property. Generally speaking, nonmonetary assets are assets that appear on the balance sheet but are not readily or easily convertible into cash or cash equivalents.
Understanding Nonmonetary Assets
Nonmonetary assets are distinct from monetary assets, which include cash and cash equivalents such as cash on hand, bank deposits, investment accounts, accounts receivable (AR) and notes receivable, all of which can readily be converted into a fixed or precisely determinable amount of money. Typical nonmonetary assets of a company include both intangible assets such as copyrights, design patents and goodwill, and tangible assets such as property, plant and equipment assets and inventory.
It is not always clear as to whether an asset is a monetary or non-monetary asset. The deciding factor in such instances is whether the asset's value represents an amount that can be converted into a determined cash or a cash equivalent amount within a very short span of time. If it can be converted into cash easily, the asset is considered a monetary asset. If it cannot be readily converted to cash or a cash equivalent in the short term, then it is considered a nonmonetary asset.
Nonmonetary Assets and Nonmonetary Liabilities
In addition to nonmonetary assets, companies also commonly have nonmonetary liabilities. Nonmonetary liabilities include obligations that cannot be met in the form of cash payments, such as warranty service on goods a company sells. It is possible to determine the dollar value of such a liability, but the liability represents a service obligation rather than a financial obligation such as interest payments on a loan.
Key Differences Between Monetary and Nonmonetary Assets
Dollar values are the accepted measure for quantifying a company's assets and liabilities as they are presented in a company's financial statements. However, nonmonetary assets and liabilities that cannot be readily converted to cash are also included in a company's balance sheet. Common examples of nonmonetary assets are the real estate a company owns where its offices or a manufacturing facility are located, and intangibles such as proprietary technology or other intellectual property.
These items are undeniably assets, but their current value is not always apparent as it changes over time in accord with economic and market conditions and forces. For example, marketplace competition changes the dollar value of a company's inventory as the company adjusts its market price in response to price competition from other companies or to the demand for the company's products. General economic forces such as inflation or deflation also impact the value of nonmonetary assets such as inventory or manufacturing facilities.