Long-Term Assets
Long-term assets are assets, whether tangible or non-tangible, that will benefit the company for more that one year. Also known as non-current assets, long-term assets can include fixed assets such as a company's property, plant, and equipment, but can also include other assets such as long term investments, patents, copyright, franchises, goodwill, trademarks, and trade names, as well as software. Long-term assets can be contrasted with current assets, which can be conveniently sold, consumed, used, or exhausted through standard business operations with one year.
Definition: Long-term assets, also known as non-current assets, are assets that provide benefits to a company for more than one year, whether tangible or intangible. Long-term assets can include fixed assets such as real estate, plant, and equipment, but also other assets like long-term investments, patents, copyrights, franchises, goodwill, trademarks, trade names, and software. Long-term assets can be contrasted with current assets, which can be easily sold, consumed, used, or exhausted within one year through standard business operations.
Origin: The concept of long-term assets originates from the basic principles of accounting and financial management. As businesses expanded and operations became more complex, there was a need to distinguish between short-term and long-term resource allocation for better financial planning and management. The concept of long-term assets became more defined during the late 19th and early 20th centuries with the advent of the industrial revolution, which saw companies making significant investments in fixed assets.
Categories and Characteristics: Long-term assets can be categorized as follows:
1. Fixed Assets: These include land, buildings, machinery, and equipment. These assets typically have a long useful life and depreciate over time.
2. Intangible Assets: These include patents, trademarks, copyrights, goodwill, etc. Although they lack physical form, they provide long-term economic benefits to the company.
3. Long-term Investments: These include equity investments and bond investments in other companies. These investments are usually held for a long period to generate long-term returns.
Case Studies:
1. Case Study 1: A manufacturing company purchases a piece of land and constructs a new factory. This land and factory will be classified as fixed assets with an expected useful life of over 20 years. This investment allows the company to expand its production capacity and enhance its market competitiveness.
2. Case Study 2: A tech company acquires a patent, which will provide the company with a technological advantage and increased market share over the next 10 years. This patent, as an intangible asset, will be listed on the company's balance sheet for the long term.
Common Questions:
1. Can long-term assets be liquidated at any time? Long-term assets are generally not easily liquidated in the short term as their primary purpose is to provide long-term benefits to the company.
2. How are long-term assets depreciated and amortized? Fixed assets are typically depreciated over time, while intangible assets are amortized.
