4. Non-Current Assets

Let's talk about non-current assets. So we've already looked at the opposite of non-current assets, which is current assets. And so here we're trying to figure out what is non-current. Non-current can also be called long-term. So these two words are interchangeable. Non-current, long-term, both are the same thing.

So if you'll remember, current assets are assets that can be converted to cash or used up in less than a year. Non-current, obviously, would be greater than one year. So that is converted to cash or used in more than one year.

Now, non-current, there are a couple things to remember. First is there are three categories. So a non-current, we can't just say, "Well, it's non-current, we'll just throw it into that bucket." We need to say, "Well, which of these three categories of non-current assets does it fall under?" So the first category of non-current assets is investments.

The second is plant, property, and equipment, and you'll see it often written as PPE, just like this. The third is intangible assets. Okay, so let's look at each of these individually. So just as a recap, we're talking about non-current assets, and they've been split into three categories, and those categories are investments; plant, property, and equipment, you'll see it abbreviated like that; and then finally, intangible assets.

So investments. This is where it gets a little bit tricky because you could see investments as something like land or securities. Now, why is this confusing? Because land could technically fall under plant, property, and equipment. Securities could technically fall under current assets if they can be sold in less than a year. So how do we know what to do with land and securities? The key thing we're looking for here is not used in operations.

So investments are anything that are over a year to maturity and they are not used in operations. And so how you're gonna see this on your quizzes and tests is land, and then it's gonna say held for future use.

If land is being held, then it is not used in operations. And you could even have buildings down here. Well, buildings is plant, property, or equipment unless it's not used in operations. So if they're holding on to a building for some future expansion, then you know that it's an investment. So what we're looking for here is a way to differentiate some things that could go in plant, property, and equipment or in investments, and the way that you differentiate is, is it used in operations? If it's not used in operations, then you're making an investment. If you're holding land for future use, you're investing in that land, hoping that at some point in the future you can use it.

Same goes for securities. If they can't be sold in under a year, so if it takes longer than a year to sell them or to realize cash from them, then they're gonna be investments. If you look back at the current asset video, we talked about marketable securities, and those were under a year to maturity. So here you're gonna see something like bonds, you know, with, let's say, 10-year maturity. Well, that's a security that has a long maturity, and so we call it a non-current asset. Okay, so what about category number two, plant, property, and equipment? So like I said, you're gonna see this as PPE.

It just means plant, property, and equipment. And this is anything used, any plant, property, or equipment used in operations. And so operations here means just running your business. What does it take to operate your business? So like I talked about earlier, you're gonna see some of the same things down here.

Let's say land, let's say buildings, and then we'll use computers as an example down here. So land. Land would be in plant, property, and equipment if it's something you use in your business. So if you are a golf course, the land that your golf course is on, that would be used in operations of running your golf course business. So the land that it sits on would be in plant, property, and equipment. Now, if you bought land on speculation and you think maybe someday I'll open a golf course there, that would be land held for future use, and so it would be up here in investments.

Do you see the difference? One is used currently today. One is not used currently today, but may be used at some point in the future. And you apply that same metric to buildings. Do we use it today? If you use it today to run your business, then it goes down here in plant, property, and equipment.

Now, here's something. Why did I put computers here? Because it depends on what kind of business you are to determine whether computers would be plant, property, and equipment, that would be the equipment part, or inventory. Because if you're Apple Computer, then computers are inventory. But if you are Ernst & Young accounting firm, computers are equipment 'cause you're not in the business of selling computers like Apple is. You're in the business of doing tax returns, and so that just becomes part of your equipment.

So that's definitely gonna be one of the questions that you see, is something ambiguous like computers, and it's gonna come down to whether it's offered for resale. So Apple offers computers for resale. Ernst & Young does not offer computers for resale. So for Ernst & Young, computers are equipment, but for Apple, computers are inventory because, well, you know, obviously Apple sells computers. Now let's look at the last category, which is intangible assets.

Well, what does intangible mean? It means they are not tangible or not able to be touched. So intangible assets are assets that you can't touch. They're not physical. They're not real world. So what kinda assets would you have that aren't real world? Well, you could have something like patents. You could have contracts or agreements. So if you have a contract, and you are the sole licensee of NFL merchandise, so if you are the person that can sell NFL merch, well, that's a pretty big deal. That's not a building, but that's a contract or an agreement, and that's pretty valuable, which makes it an asset.

You could also have something called goodwill, which you'll learn about later, and goodwill just means, basically, we'll call it brand value. So like I said above about Apple, Apple has a lot of brand value. It's not something you can put your finger on, but everyone loves Apple, and so they're willing to pay a premium, and that premium is called goodwill. So when you're valuing a business, anything above the book value, anything above, like, the assets that they own is called goodwill, and you'll learn all about goodwill later. So intangible assets are assets that have value that aren't really physical. You can't touch them, and so these things are gonna last much longer than a year.

Patents, I forget how long, but it's a long time. I think patents may be 20, copyright may be 70, something like that. Contracts and agreements, those are gonna be longer than a year, and goodwill is kind of this intrinsic brand value that you've built up over a long time. So all of this stuff is long term.