What is a long-term asset?
The asset that cannot be turned into cash and needs to be consumed within a specific duration of one year from the date mentioned in the heading a balance sheet is considered as a long-term asset. However, when a company follows an operating cycle longer than one year, there is no chance of turning the long-term asset into cash for that longer operating cycle.
In other words, a long-term asset does not have the features to meet criteria of considered it as a current asset. That’s why the long-term assets are also called as non current assets.
The following things are the main feature of long-term asset:
- Long-term investments: Things like certain investment in bonds and stocks of other companies, the bond sinking fund of the company, its cash surrender value of the life insurance policies, real estate properties that are waiting to be sold are included in long-term investments.
- Property, plant, and equipment: Things like buildings, lands, machinery, vehicles, types of equipment, fixtures and so on those are essentially used in business come under this classification. These are also called fixed assets or capital assets.
- Intangible assets: Under the intangible assets of business, things like trademarks, customer lists, goodwill, patents and other relevant things that are obtained during a transaction are included.
- Deferred charges: This classification includes the costs of a bond issue that are paid back throughout the life of the bonds and the deferred income taxes relevant to certain assets.
For the accurate financial reporting, exact information about the long-term assets of a company is a vital component. It also has significance on business valuation and in-depth financial analysis. Several financial bodies define how and when the assets of a company to b reported; however, companies usually employ several accepted formulas on the recording, disposing and depreciating of assets. That’s why analysts are required to study the notes of all financial statements of a company.