Long-term assets definition
/What are Long-Term Assets?
Long-term assets are assets that are not expected to be consumed or converted into cash within one year. These assets are typically recorded at their purchase costs, which are subsequently adjusted downward by depreciation, amortization, and impairment charges. Thus, unless these assets are replaced, the amount reported by a business tends to decline over time.
Types of Long-Term Assets
There are several types of long-term assets, of which the following are among the most common:
Property, plant, and equipment. These are tangible assets used in operations that have a useful life of more than one year, such as buildings, machinery, vehicles, and land. They are recorded at cost and depreciated over their useful lives, except for land, which is not depreciated. These assets are essential for production and service delivery.
Intangible assets. Intangible assets lack physical form but provide long-term value, such as patents, trademarks, copyrights, and goodwill. These assets are typically amortized over their useful lives, except for goodwill, which is tested for impairment. They often arise from acquisitions or internal development.
Long-term investments. These include stocks, bonds, or real estate that a company intends to hold for more than one year. Unlike short-term investments, they are not expected to be sold in the near term and are recorded as non-current assets. They can generate interest, dividends, or capital gains over time.
Deferred tax assets. Deferred tax assets arise when a company has overpaid taxes or has tax-deductible temporary differences that will reduce future tax liabilities. They are expected to be realized in future periods when the timing differences reverse. Their recognition depends on the likelihood of generating sufficient taxable income in the future.
Capitalized development costs. These are costs incurred in developing new products, systems, or software that are expected to generate long-term economic benefits. Under certain accounting standards, these costs can be capitalized rather than expensed immediately. They are then amortized over the estimated life of the developed asset.
Leased assets (right-of-use assets). Under lease accounting standards, assets acquired under long-term leases are recognized on the balance sheet as right-of-use (ROU) assets. These represent the lessee’s right to use an asset over the lease term. ROU assets are amortized and paired with a corresponding lease liability.
Natural resources. These include assets like oil reserves, timber tracts, and mineral deposits that are extracted and used over time. They are recorded at cost and depleted over their productive life. The depletion process allocates the cost of the resource as it is consumed.
Presentation of Long-Term Assets
Long-term assets are reported on an organization’s balance sheet, after its current assets. Two long-term assets are shown in the following balance sheet example.
All assets not classified as long-term assets are classified as current assets. Current assets are expected to be consumed or converted into cash within one year.