What Are Non-current Assets: Meaning, Examples, and Calculation

Assets are the most important resources a business owns, but not all of them are created equal. Understanding the difference between long-term and short-term investments is key to managing your finances effectively.

While current assets are the resources your company owns and plans to convert into cash within a year, non-current assets are the backbone of your financial stability in the long run. These are the investments that support your business operations and generate economic benefits over time.

In this post, we’ll break down the definition of non-current assets, explain why they matter, and guide you through the different methods for calculating them. We’ll also share the various types that exist and some common examples to help you better understand what are non-current assets.

What are non-current assets?

Non-current assets are resources a business owns and plans to hold for more than one year, using them to support its long-term operations. You’ll find these assets listed on a company’s balance sheet, as they play a crucial role in generating revenue and sustaining the business over time.

Non-current assets fall into two categories: tangible and intangible assets. 

The tangible assets include property, equipment and vehicles, while intangible ones include intellectual property and brand recognition. Although the former are easier to measure, the latter shouldn’t be overlooked, as they are just as important to a company’s long-term success and financial health.

Other examples of non-current assets include a company’s long-term investments, such as bonds or stocks that are held for years.

Characteristics of non-current assets

Non-current assets have distinct traits that set them apart from other types of assets. 

Here’s what you need to know:

• Long-term use: Non-current assets are resources a business holds for more than a year (or one full operating cycle). Unlike inventory or cash, these assets aren’t meant for quick turnover. Instead, they help sustain the company’s operations over the long haul.
• Not readily convertible to cash: Non-current assets aren’t easily turned into cash. Even if a business decides to sell them because they’re no longer needed, the process takes time and they often sell for less than their original value. This makes them far less liquid than current assets like cash or inventory.
• Supports revenue generation: Assets with long-term value play a crucial role in helping businesses generate revenue. These can include physical assets like machinery, buildings and land, which support daily operations and contribute to the production of goods or services. 

Without them, a company wouldn’t be able to function and generate future cash flows.

Current vs. non-current assets

When we talk about assets, they’re generally categorised as either current or non-current. The difference comes down to how quickly they can be turned into cash and how long the business plans to hold onto them.

Non-current assets aren’t expected to be sold or used up quickly, as they support business operations over time. The other type, however, is highly liquid, meaning it can be easily turned into cash. 

Current assets include things like the money you have on hand or in your business payment card, as well as other cash equivalents, inventory, accounts receivable and even prepaid expenses. Anything that’s expected to be converted to cash or used up within one year or an operating cycle is considered a current asset.

Examples of non-current assets

Non-current assets encompass various types of resources that a company holds for the long term. In this section, we’ll explore some common examples from the major categories of non-current assets.

Tangible assets 

Tangible non-current assets, also called fixed assets, are the resources that have a real physical substance. They are crucial for running a business, as they’re typically used in daily operations and production.

The most obvious example would be property, plant, and equipment (PPE). This includes things like land, buildings, machinery, vehicles, office furniture and other equipment that have a useful life of more than a year.

Natural resources like oil reserves or timber that you intend to extract or sell also fall into this category.

Intangible assets

Intangible non-current assets don’t have a physical form, but they still add significant economic value to your business. These resources can provide strategic and financial benefits over time.

Some common examples include intellectual property such as patents, trademarks, and copyrights. Customer lists are another example – they can help your business generate income for years. 

Other examples are licenses, which give your company the right to do something (like operate in a certain industry), and goodwill, which refers to the value of your company’s reputation and the relationships you’ve built with customers.

Financial assets

Financial non-current assets are investments or resources that your business holds for the long term, usually to generate returns or support strategic goals. You don’t use these in day-to-day operations or expect to sell them anytime soon.

Examples include long-term investments like securities or bonds that you plan to hold for more than an accounting year. You might also have deferred tax assets, which represent taxes a company has overpaid and can be recovered at a future date.

How to calculate non-current assets

You’ll often find the total value of non-current assets at the bottom of your balance sheet. But if you’d like to calculate it yourself, just add up all the long-term resources your business owns. 

Here’s how you can do it:

Non-Current Assets = Tangible Non-Current Assets + Intangible Non-Current Assets + Financial Non-Current Assets

However, keep in mind that this figure doesn’t show the real value of your company’s non-current assets. That’s because it doesn’t take into account things like depreciation or amortisation, which reduce the total value over time.

Book value of non-current assets

The book value gives you the full value of your non-current assets, factoring in depreciation or amortisation. In other words, it’s the true cost after it’s lost some of its worth over time. 

To calculate the book value, use this formula:

Book Value = Purchase Price – Accumulated Depreciation/Amortisation

Let’s say your company bought a machine for £50,000 and it has accumulated £20,000 in depreciation. To find the book value, simply subtract the depreciation from the purchase price:

£50,000 – £20,000 = £30,000

Net non-current assets

The net assets calculation helps you figure out the real worth of your long-term assets, considering both depreciation and any impairments. This gives you an even clearer picture of the true value of your business’ investments over time.

Net Non-Current Assets = Total Non-Current Assets – Accumulated Depreciation and Impairments

For example, if your company’s non-current assets are worth £200,000, with £50,000 in accumulated depreciation and £10,000 in impairments, here’s how you calculate your net assets:

£200,000 – £50,000 – £10,000 = £140,000

Importance of non-current assets in financial statements

Non-current assets play a crucial role in your business’ financial stability and long-term success. They’re a key indicator of your ability to generate revenue, stay competitive, and fuel growth. 

Understanding them can help you make smarter investment decisions and plan for the future. That’s why, here, we’ll take a closer look at their role in your company’s financial statements.

Role in the balance sheet

The balance sheet is like a snapshot of your business’ financial health. It shows your company’s net worth, capital, and future cash flow. It also lists all of your assets, separating them into two categories: current and non-current.

Non-current assets usually appear under the following headings on your balance sheet:

• Tangible assets: Physical items like property, equipment or machinery.
• Intangible assets: Non-physical assets, like patents or trademarks.
• Financial assets: Investments that can bring future economic benefits.

When businesses acquire non-current assets, they record them on the balance sheet rather than treating them as an expense. This is an important distinction because it impacts how you measure your business’ financial performance over time.

Contribution to the income statement

Non-current assets also show up on your income statement. While they’re not directly listed as income, their depreciation or amortisation is. That’s because it counts as a company expense. 

Depreciation applies to fixed assets, while amortisation is for intangible resources. These expenses reduce your taxable income, and, in turn, your business’ net income and profitability.

Indicators of economic value

Non-current assets are a good indicator of your company’s ability to generate future cash flow. They represent your company’s long-term investments that contribute to your ongoing profitability. By examining these numbers, you can better assess your overall performance and spot opportunities for future expansion. 

It’s also a key part of assessing whether your business is a good investment for potential shareholders. Investors and creditors often look into these numbers to evaluate a company’s ability to generate profit and create shareholder value.

Managing non-current assets

Long-term assets represent significant investments, so managing them effectively is crucial for any business. They directly impact financial health, productivity and growth, but with proper management, you can ensure they stay functional, retain value and contribute to profitability.

Depreciation and amortisation

Because non-current assets provide value over several years, their cost shouldn’t be deducted all at once. Instead, businesses allocate their cost over time using depreciation and amortisation. This process ensures financial statements reflect the real value of assets and expenses. 

There are different ways to calculate depreciation and amortisation:

• Straight-line depreciation – Spreads the cost evenly over the asset’s useful life. For example, if a machine costs $10,000 and lasts 10 years, the expense is $1,000 per year.
• Reducing balance (declining balance) – Applies a fixed percentage to the remaining value each year, meaning higher depreciation in the early years and lower later on. This method is useful for items that lose value quickly, like electronics.

Getting depreciation and amortisation right ensures your business isn’t overstating profits and helps with tax planning.

Impairment of non-current assets

Sometimes, the value of a business’ holdings is lost faster than expected. Impairment happens when an asset’s market worth drops below its recorded book value. 

This could be due to factors like:

• Economic downturns;
• New technology making old equipment obsolete;
• Physical damage or wear and tear beyond normal expectations.

Impairment losses must be recorded as expenses, which reduces net income but provides a more accurate picture of your financial position. Regular impairment checks prevent businesses from overstating capital values.

Maintenance and upgrades

Non-current assets need regular maintenance to stay in good shape. Routine servicing, repairs and inspections help avoid costly breakdowns and keep assets working efficiently for longer.

Beyond maintenance, upgrades and replacements are smart ways to enhance performance and extend the useful life. For example, you can upgrade software to improve efficiency and security or invest in new office equipment to keep up with industry advancements.

While these improvements require capital expenditure, they can boost productivity and prevent unexpected expenses from outdated or failing equipment. 

Conclusion

Non-current assets might not bring in cash within a few months, but they are the backbone of your business’ long-term success. Whether it’s the equipment that keeps your operations running, the property you work from, or even patents and trademarks that bring extra capital, these assets help sustain and grow your company over time.

Understanding how to classify, value and manage your long-term resources is key to making informed financial decisions.

By regularly tracking and maintaining your non-current assets, you can ensure they perform at their best, avoid costly surprises and set your business up for growth.

Frequently Asked Questions

What are non-current liabilities?

Non-current liabilities, also called long-term liabilities, are financial obligations a business owes that are not due within the next 12 months. These liabilities typically include long-term loans, bonds payable, deferred tax liabilities and lease obligations. They represent debts and obligations that businesses repay over an extended period.

Is a laptop an asset or an expense?

A laptop can be either an asset or an expense, depending on how it is used and how you choose to record it in your financial statements. If the laptop is purchased for business operations and is not expected to be resold within one year, it is considered a non-current asset. However, if it is purchased only for a short-term project or a temporary employee, it may be classified as an expense on the income statement. Additionally, some businesses have policies of expensing low-cost items instead of capitalising them, if their cost falls below the company’s capitalisation threshold.

Is prepaid rent a current or non-current asset?

Prepaid rent is typically seen as a current asset because it represents a payment made in advance for a service that will be used within the next 12 months. On the income statement, the payment is gradually expensed as the rent period passes. If prepaid rent covers a period longer than one year, the portion that applies to the later years is classified as a non-current asset. For example, if a company prepays rent for three years, the amount covering year one is a current asset, while the remaining two years’ worth is recorded as non-current.