Non-current assets, also known as long-term assets are assets whose benefits will be realized over more than one year and cannot be converted to cash easily. Non-current assets are further divided into tangible and intangible assets. Tangible non-current assets are assets that have physical existence meaning they can be touched ie property and machinery. Intangible non-current assets, on the other hand, are assets that do not have physical existence such as licenses, patents, goodwill, etc…
Why Are Non-current Assets Held By A Business?
Each class of non-current assets has a different purpose to serve in the business. Following are the main THREE reasons why businesses hold non-current assets.
- Use in the business
- Value Appreciation
- For Sale (IFRS 5)
1. Use In The Business
Assets that are held for business use include property, plant & equipment such as machinery, building, land, vehicles, and other office equipment. These are the tangible long-term assets of the company that are used in business activities.
2. Value Appreciation
Some assets are held for value appreciation rather than use in the business. Appreciation is an increase in the value of an asset over time. For example, when a business buys a piece of land with the intention to sell it at some point in time.
3. Assets Held For Sale
Assets are classified as held for sale if their carrying amount will be recovered mainly through selling it rather than using it in the normal course of trading. IFRS 5 has laid the following conditions for the assets to be classified as assets held for sale.
- The asset must be available for immediate sale in its present condition and its sale must be highly probable
- The asset must be currently marketed for sale at a reasonable price that reflects its fair value
- The sale should be completed or expected to be completed within one year from the date of classification
- The actions required to complete the planned sale will have been made and it is unlikely that the business will significantly change or withdraw the plan.
