Introduction of Non-Current Assets
Non-current assets are the backbone assets of the entity which the enterprise retains with the basic intention of using them for the purpose of business so that the benefits (i.e. the main revenue) will accrue over a longer period of time and these are not retained with the intent to just earn profits by selling them like the inventory in the ordinary course of business.
- The balance sheet of any entity is divided into two parts, namely, non-current assets & current assets. Non-current assets are assets of the entity which are usually held for the long term. Current assets are to be settled usually within one year from the close of the fiscal year.
- They are used for the purpose of generating revenue. These are normally not sold in the short term. Even if they are sold in the short term, the basic intention is not to earn profit but for other reasons like shifting of premises or mergers of business.
- Since they are used for the long term, these help in accruing revenue for the entity, thus, the efficiency of many non-current assets is measured in respect of revenue generated or cost-saving.
- Broadly, the non-current assets there are different non-current assets. The broad categories include tangible assets, intangible assets, capital work in progress, long term investments, deferred tax assets, long term advances, etc.
- These are presented on the assets side of the balance sheet. If the operating expenses of the entity have increased substantially as compared to last year, there is a possible chance that the company has errored in treating capital expense as operating expense & hence, the operating may have increased in the current year.
- Few of the non-current assets are amortised or depreciated over the life of non-current assets. Few non-current assets are remeasured at the end of every year & a differential effect is given to the statement of profit & loss.
The formula for non-current assets depends on the type of non-current assets. Thus, various formulae for non-current assets are as follows:
|Tangible fixed assets||At the end of the year, Cost – Accumulated Depreciation|
|Intangible fixed assets||At the end of the year, Cost – Accumulated Amortisation|
|Long term investments||Investment + (Income due but not received) – (Pre-acquisition income)|
|Deferred Tax Assets (Net)||Gross deferred tax asset – gross deferred tax liabilities|
|Capital Work in progress||Opening Balance of Capital WIP + development expenses incurred during the year – amount capitalized during the year|
Each formula is further explained in the examples heading below.
Examples of Non-Current Assets
Different types of non-current assets are considered in the below example:
|Particulars||As of December 31, 2019|
|Capital work in progress||1,92,73,142|
|Deferred tax assets (net)||11,84,07,951|
|Long-term loans and advances||33,90,81,547|
The tangible fixed assets of the company include a list of physical assets of the entity. The details of include the net total cost of the assets & the net total accumulated depreciation of that asset. The details are as below:
Tangible Fixed Assets
Written Down Value
|Plant and Machinery||28,32,32,359||4,24,84,854||24,07,47,505|
|Furniture and fixtures||1,29,94,747||12,99,475||1,16,95,273|
|Refrigerators & Air conditioners||4,95,70,873||4,21,35,242||74,35,631|
|Non – Perishable Tools||7,67,54,049||1,53,50,810||6,14,03,239|
|Total of tangible assets||90,23,56,046||19,84,05,166||70,39,50,881|
The intangible assets are non-physical assets which company develops within it or acquires it. These are company’s know-how. The details of figures are derived as below:
|Intangible Fixed Assets||Cost||Accumulated Amortisation||WDV|
|Total of Intangible assets||11,62,86,958||2,90,71,739||8,72,15,218|
Capital work in progress means that entity is working on building few fixed assets on its own. Thus, certain capital expenses are incurred for the same. The details are as follows:
|Opening Capital Work in Progress||8,54,65,132|
|Add: Capital Expenses||1,31,71,588|
|Less: Expenses capitalised during the year||7,93,63,577|
|Net Capital WIP||1,92,73,143|
Long term loans & advances are advances provided by the company for a period of more than one year. The value is derived as below:
|Long-term loans and advances||Amount||Income Accrued||Total Amt|
|Unsecured considered good (Unless otherwise stated):|
|Balance with government authorities||26,88,56,895||–||26,88,56,895|
|Advance income tax||1,84,98,196||–||1,84,98,196|
Types of Non-Current Assets
|Property, Plant & Equipment (PPE)||
|Long Term Investments||
|Long Term Advances||
|Deferred Tax Assets||
Non-Current Assets vs Fixed Assets
|These include fixed assets, intangible assets, capital work in progress, long term investments, deferred tax, etc.||These include only the core assets of the company used for production.|
|All non-current assets are not used for production.||All fixed assets are used for production.|
|Capital WIP is transferred to fixed assets, and hence, the overall value of non-current assets remains the same due to internal transfer.||It only includes the capitalised portion of capital WIP.|
|All its components are reported on the face of the balance sheet.||All its components are reported in the schedules attached to the balance sheet & not on its face.|
|The values of a few non-current do not deplete over time.||Fixed assets deplete over time.|
|Different reporting standards apply for each type of non-current asset.||Only one reporting standard is applicable for fixed assets.|
Some of the disadvantages are given below:
- The value declines substantially over a longer period of time.
- The scrap value is not always attractive & hence it is difficult to obtain easy cash on their sale.
- Lumpsum sale of non-current assets (such as fixed assets) gives wrong indications to the investors of the company.
- Easy replacements are not always available.
- Fair valuation of a few non-current is critical, as the human resource valuation of the company.
- Some of the non-current assets are cannot be seen with naked eyes & hence their existence requires fair valuation from experts.
It is the wheels of the business run by the company. However, the quantum of it is not linked with the efficiency of the company. It is the quality of few non-current assets, which drives the business. The extent of investment in non-current assets varies from industry to industry. Capital-intensive industries will observe a higher amount of investment in non-current assets & a higher amount of turnover in the values as compared to non-capital-intensive industries. Manufacturing companies usually have higher non-current assets than service-oriented companies.
This is a guide to Non-Current Assets. Here we also discuss the introduction and types of non-current assets along with examples and disadvantages. You may also have a look at the following articles to learn more –