What is Long-Term Assets?
1122 reads · Last updated: December 5, 2024
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 are assets that provide benefits to a company for more than one year, whether tangible or intangible. Also known as non-current assets, long-term assets can include fixed assets such as real estate, plant, and equipment, but can also include 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 through standard business operations within one year.
Origin
The concept of long-term assets originated from the development of accounting practices. As businesses grew in size and asset management became more complex, there was a need to distinguish between short-term and long-term assets for better financial planning and management. The late 19th and early 20th centuries, with the advent of industrialization, saw businesses systematically recording and managing their assets, marking the formal establishment of the long-term asset concept.
Categories and Features
Long-term assets can be divided into tangible and intangible assets. Tangible assets include land, buildings, and equipment, which typically have a physical form and depreciate over time. Intangible assets include patents, trademarks, and goodwill, which do not have a physical form but can provide long-term economic benefits to a company. The main feature of long-term assets is their lifespan exceeding one year, and they usually require depreciation or amortization to allocate their cost over time.
Case Studies
A typical example is Apple Inc., whose long-term assets include its global offices and production facilities, as well as its extensive patent portfolio. These assets provide Apple with ongoing production capacity and technological advantages. Another example is The Coca-Cola Company, whose trademark and brand value are considered intangible long-term assets, helping the company maintain competitiveness in the global market.
Common Issues
Investors often face challenges in accurately valuing intangible assets and dealing with the depreciation and amortization of long-term assets. A common misconception is that all long-term assets can yield high returns upon sale, but in reality, market conditions and the specific nature of the assets can affect their ultimate value.
