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Long-term assets are holdings that are not likely to be converted into cash for an extended period of time. Often, if the holding is held for longer than a period of one calendar year, it achieves the status of being a long-term asset. Assets of this type include property, stocks, bonds, and other forms of capital assets.
For a business, a long-term asset is normally identified as property and assets that are used in the manufacturing of goods or services. This means that property like manufacturing facilities, warehouses, sales offices, and any other real estate that is used in the ongoing operation of the business would be considered a long-term asset. In addition, equipment used in the production process would also be considered among the capital assets, and thus also identified as a long-term asset.
When it comes to investments, any stocks that the investor plans on retaining in the portfolio for longer than a period of one calendar year would be considered long-term assets. Bond issues, which often take anywhere from one to thirty years to mature, would also fall into this category. Commodities that are held for longer than one year also meet this basic working definition.
Calculating the worth of a long-term asset varies, depending on the nature of the entity holding the asset, and the type of asset under consideration. With the capital assets held by a business, such as property and operational equipment, the value is normally identified as the purchase price, minus any amount of depreciation that has taken place since the purchase. With investments like bonds, the asset is normally valued at the original purchase price, until the issue reaches maturity or the bond is called early and rolled into a new bond issue.
The accumulation of assets for holding over the long term serves several key purposes. For businesses, the goal is to secure machinery and other necessary assets that will allow the company to produce products for an extended period of time, without the need to replace those assets before they have generated enough return to cover the original purchase price. In terms of investments, a long-term asset can function as an anchor for the investment portfolio, helping to maintain the overall value of the portfolio even as short-term investments are bought and sold with some degree of regularity.
Not all assets that are identified as long-term necessarily undergo any type of depreciation. In some cases, they actually may appreciate in value. For example, a house would be considered a long-term asset for an individual, and could experience an increase in property value over the years, rather than losing value as the home ages.
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