January 26, 2022

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Meaning of Noncurrent Assets with key Explanations

Meaning of Noncurrent Assets with key Explanations
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In a previous article, assets were defined as the resources of a business. But, these resources can either be current or noncurrent. Their separation is based on time. Assets within a year are current assets and the assets above one year are referred to noncurrent.

What are noncurrent assets?

Noncurrent assets are those economic resources of an entity that are available for use for a period above one year.

It can simply be defined as the part of entity assets expected to be available for use for more than a year.

Key Explanations

These types of assets are part of the business’s economic resources. Economic resources include cash, inventory, property, plant and equipment, investments, and so on.

It is for more than one year. Noncurrent assets are available for more than a year. Certain noncurrent assets may be used as long as the organization is in existence. These assets appreciate rather than depreciate in value. The land is a good example of it. Building my fall under renewable assets if the entity’s management has a good maintenance culture.

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Noncurrent assets are available for use within an organization. This means that it provides economic benefits to the entity. For example, an Oven to bake bread provides economic benefit in terms of revenue or cash flow to the entity.

However, a few noncurrent assets may have the potential of providing economic benefit. That is, may not provide economic benefit now but will do so in the foreseeable future. A good example here is the company’s cars for its managers. Although, this will not provide revenue to the entity. It will in the future be sold and provide the entity with cash.

Before the use of IFRS in Nigeria, noncurrent assets were referred to as fixed assets, intangible assets, and investment assets. In a balance sheet as at then, these sets of assets were presented separately with Untangle assets at the top of it.

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But IFRS made it simple, by classifying all assets above a single year as noncurrent assets. This makes more sense and gives more meaning to asset classification.

In presenting a balance sheet or a statement of financial position, noncurrent assets are stated at the top, if the business is a going concern. Going concerned means that the business is not expected to stop normal operations within the next financial year.

However, banks present noncurrent assets below current assets in a statement of financial position. This doesn’t affect the bank’s going concern. It is the usual practice as banks rely mostly on cash to carry out their traditional services.

In Conclusion

Noncurrent assets are assets that are available in the entity for a period above one year. Such assets can provide an economic benefit or have the potential to do so.

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