Every business needs to invest in a certain amount of assets, which generate income for the business. Businesses have a wide range of assets that include both Current and Non-current assets. It is important for a business to be able to manage its assets, and use them efficiently to get the maximum possible returns.
Assets are a key component of company’s Balance Sheet. Assets are the items that are owned and controlled by an organization. Assets can be categorized into Current and Non-current assets. Current assets are the ones that that will be turning to cash within a period of one year whereas Non-Current assets are those assets that will not have their full value realized within 12 months of the balance sheet date.
Let us analyse and understand Non-Current Assets in detail.
Non-current assets are also termed as long-term assets. These are the assets which are capitalized rather than expensed. That means 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. Examples of Non-Current assets include Intangible assets, Property, plant and equipment, Long-term investments, Long-term notes receivable, Long-term deposits and advances etc.
Non-current assets are stationery in nature meaning their value remains relatively and they tend to remain in the business for a longer period of time. Non-Current Assets are not involved in the day-to-day operations of the business and hence they cannot be used to meet the short term obligations of the business.
Classification of assets into current and Non-current is important for the business. It is important to know the nature of the assets in order to know how quickly these assets can be converted to cash. Since these Non-current assets are expected to generate economic benefits over different time periods, they must be depreciated over their useful lives.
The Non-Current assets are an important element for conducting financial analysis. Analysing Non-current assets by using Return to Assets Ratio will help us to know the profits generated by the company by using these assets. The analysis on Non-current assets is used for conducting comparison between various companies. It tells the business owners whether they are earning a worthwhile return from the wealth tied up in their companies. It will also help the management to plan their investment in assets well.