What are Noncurrent Assets?

Noncurrent assets are any assets that the holder plans on retaining for at least an entire calendar year. During that time, the asset is not sold or exchanged, but is held and accounted for in the owner’s accounting and tax records. Many different types of assets may be classed as noncurrent, including real estate, machinery and even a range of intangible assets like patents or trademarks. While considered essential to the financial health of a business operation, there is also some amount of risk involved with most assets of this type, a factor that must be considered when acquiring any assets that may be classed as noncurrent.

Companies often hold a number of noncurrent assets as part of the operational structure of the business. Machinery that is used in the production process is one example. Cash assets that are drawing interest in time-sensitive accounts may also fall into this category, assuming that the funds are not to be withdrawn for at least one full year. Real estate that is not involved in some short-term effort investment scheme that calls for buying and renovating property for resale in a matter of months would also be considered a noncurrent asset.

There is some gray area in determining whether an asset can be classed as current or noncurrent. This is usually when the item involved is considered a deferred expense. From an accounting point of view, deferred or prepaid expenses such as insurance premiums or rent obligations that are tendered well before the actual due date would be classified as current assets. At the same time, those same expenses would often be categorized as noncurrent assets by a credit analyst. The rationale is that those prepaid expenses do not exhibit the characteristics of asset protection and strength in the same way that current assets do, leading to a more or less default classification as noncurrent.

To some degree, noncurrent assets are considered most important to the long-term efforts of a business to earn a profit. Assets of this type also represent something of a risk, since they normally cannot be readily converted into easy cash in an emergency situation, without incurring some sort of loss or penalty. In addition, the actual value of some noncurrent assets is more likely to fluctuate over time. A good example is real estate that may rise or fall in terms of property value, based on what is happening with property values in the immediate area, and the movement of the local or national economy.