What Are Noncurrent Assets? Types and Examples

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Noncurrent assets, also called long-term assets, are resources a company expects to hold or use for more than one year (or one operating cycle, if that is longer) and does not expect to turn into cash within that period. Typical examples are plant, machinery, land, patents, long-term investments and goodwill. They are reported separately from current assets on the balance sheet. Their cost is usually capitalized and spread over the years the asset is used rather than expensed all at once.

How Noncurrent Assets Work

Every asset on a balance sheet is classified as either current or noncurrent. Current assets, such as cash, accounts receivable and inventory, are expected to be collected, sold or used up within a year or one operating cycle. Anything expected to deliver its benefit over a longer horizon is noncurrent.

The classification controls how a purchase reaches profit. A company that buys a delivery truck to run for eight years does not expense the full price in the year of purchase. It capitalizes the cost, recording it as an asset, and moves a portion to the income statement each year, matching the expense to the periods that benefit from the asset. Three terms describe that allocation:

• Depreciation applies to tangible assets such as buildings, machinery and vehicles. Land is the main exception: it is not depreciated.
• Amortization applies to intangible assets with a finite life, such as a patent or a customer list.
• Depletion applies to natural resources such as oil reserves or timber, usually based on how much is extracted.

On the balance sheet, noncurrent assets usually appear under these headings:

1. Investments: bonds held to maturity, stakes in other companies, real estate held for investment, and funds set aside for long-term purposes.
2. Property, plant and equipment (PP&E): land, buildings, machinery, vehicles, furniture and fixtures. This group is often called fixed assets.
3. Intangible assets: patents, trademarks, copyrights, licenses, customer lists and goodwill.
4. Other assets: long-term items that do not fit the headings above.

An investment counts as noncurrent only if it is not expected to become unrestricted cash within 12 months of the balance sheet date. A bond maturing in six months is therefore a current asset, even if the company bought it years ago.

Types of Noncurrent Assets

Tangible assets have a physical form: real estate, factories, equipment, computers and furniture. They serve the business for several years rather than being resold or consumed within the year.

Intangible assets have no physical presence but still have economic value. Some, such as a patent or trademark, are created or registered by the company. Others come from acquisitions. Goodwill, for example, arises when a buyer pays more for a business than the fair value of its identifiable net assets.

Natural resources come from the earth: oil and gas reserves, mineral deposits and timberland. Their cost is depleted as the resource is extracted or harvested.

Examples of Noncurrent Assets

Beyond PP&E and intangibles, several less obvious items are classified as noncurrent:

• Cash surrender value of life insurance on company-owned policies the company does not plan to cash in during the coming year.
• Bond sinking funds, money set aside to repay long-term debt.
• Certain deferred tax assets, which represent future tax benefits.
• Long-term prepaid expenses. In a hypothetical example, a company prepays 24 months of rent: the 12 months used during the next year are a current asset, and the remaining 12 are noncurrent.
• Advances paid toward the purchase of land or equipment, which lead to a noncurrent asset rather than to cash.

How Noncurrent Assets Are Accounted For: A Worked Example

The most common depreciation method is straight-line:

Annual depreciation = (Cost − Salvage value) ÷ Useful life

Hypothetical example: A manufacturer buys a machine for $50,000. It expects to use the machine for 9 years and sell it for $5,000 at the end.

• Annual depreciation = ($50,000 − $5,000) ÷ 9 = $5,000
• After three years, accumulated depreciation = $15,000
• Carrying (book) value after three years = $50,000 − $15,000 = $35,000

Each year, $5,000 reduces operating profit on the income statement. The machine’s carrying value on the balance sheet falls by the same amount. The cash, however, left the business when the machine was bought. That outflow appears as capital expenditure in investing activities on the cash flow statement, which is why capex is subtracted when calculating free cash flow. Depreciation is a noncash charge, which is why measures such as EBITDA add it back.

Assets are normally carried at historical cost less accumulated depreciation or amortization. If an asset’s value drops sharply, for instance because a factory is idled or an acquired brand loses customers, the company records an impairment and writes the asset down. Under US GAAP, public companies do not amortize goodwill. They test it for impairment instead.

Current vs. Noncurrent Assets

The dividing line is timing, so the same type of item can land on either side. Prepaid rent is split by the months covered. Land is noncurrent when a company holds it for operations or long-term investment, but it is inventory, and therefore current, for a property developer that buys land to sell. Office supplies, and often small tools depending on their value and lifespan, are usually current because they are used up quickly.

Interpreting and Limitations

Total noncurrent assets show how much capital is tied up in long-lived resources, and comparing them with current assets gives a rough sense of capital intensity. A high share can point to weaker liquidity, but it often reflects the industry: an oil refinery can carry most of its assets as plant and equipment, while a consulting firm or software service provider may own little beyond computers and office furniture. The comparison is most meaningful between companies in the same sector.

The reported figures have clear limits:

• Historical cost lags market value. A building bought decades ago may be carried far below what it would sell for today.
• Estimates drive the numbers. Useful life and salvage value are management judgments, and changing them changes annual expense and book value.
• Many internally built intangibles are missing. Under US GAAP, a company that develops its own brand or technology generally expenses most of those costs, while an acquired brand is recorded as an asset. Two similar businesses can therefore report very different intangible balances.
• Book value is not liquidation value. Specialized equipment may fetch far less than its carrying value in a quick sale.

FAQs

The Bottom Line

Investors and analysts reading a balance sheet need to understand how long-lived assets reach profit and where their reported values fall short. Carrying values rest on historical cost and management estimates, and they can omit internally built intangibles, so book value can differ widely from market or liquidation value. Comparisons of noncurrent asset levels are most useful between companies in the same industry.