Nonmonetary asset definition
/What is a Nonmonetary Asset?
A nonmonetary asset is an asset whose value is not fixed in terms of currency and may fluctuate due to market and economic conditions. Unlike cash or receivables, it does not represent a claim to a predetermined amount of money. Its carrying amount is based on historical cost, fair value, or another measurement basis under applicable standards. Examples include buildings, equipment, inventory, and patents. The amount realized upon sale can vary significantly depending on supply, demand, and overall economic trends.
Characteristics of Nonmonetary Assets
The key characteristics of nonmonetary assets are as follows:
Lack of fixed cash value. Unlike monetary assets (such as cash or receivables), nonmonetary assets cannot be readily expressed in a specific amount of currency. Their value may fluctuate due to market conditions, usage, or passage of time.
Physical or intangible form. Nonmonetary assets can be tangible, such as property, plant, and equipment, or intangible, like patents, trademarks, or goodwill. Both types are expected to provide economic benefits over multiple periods.
Subject to depreciation or amortization. Tangible nonmonetary assets are typically depreciated, while intangible assets are amortized over their useful life, reflecting the consumption of their economic benefits.
Valuation based on use or market factors. The value of nonmonetary assets often depends on usage, productivity, market demand, or appraisal, rather than a contractual right to receive cash.
Used in core operations. These assets are commonly involved in the production or delivery of a company’s goods or services and are essential for generating revenue over time.
Presentation of Nonmonetary Assets
Nonmonetary assets are not usually considered to be readily convertible into cash, or to be short-term assets. Consequently, they are more likely to be classified on the balance sheet as non-current assets. They are frequently classified within the fixed assets section of the balance sheet. However, inventory is also considered a nonmonetary asset, and that is classified as a short-term asset, on the grounds that it is expected to be sold within one year.
FAQs
How do nonmonetary assets differ from monetary assets?
Monetary assets represent fixed or determinable amounts of currency, such as cash, receivables, and certain debt securities. Their value does not fluctuate with market prices, though purchasing power may change. Nonmonetary assets, such as inventory, equipment, and intangibles, lack fixed cash values and may vary significantly based on economic conditions.