Long-term assets

Financial Times  Mar 7  Comment 
Insurer is growing thanks to people who cannot say no
Forbes  Oct 8  Comment 
Thanks to a near-perfect mix of smart spending, overall depth and, most importantly, a budding youth movement, the Chicago Cubs are headed to the National League Division Series after shutting out the Pittsburgh Pirates 4-0 tonight in the NL Wild...
BusinessWeek  Sep 22  Comment 
The Federal Reserve’s effort to reduce borrowing costs with an unconventional policy tool may also be highlighting limits to its power to fix what ails the U.S. economy.
BusinessWeek  May 16  Comment 
Global demand for U.S. long-term financial assets such as government bonds slowed in March as investors shifted into shorter-term securities and China trimmed its portfolio of Treasuries.
BusinessWeek  Jul 16  Comment 
Global demand for long-term U.S. financial assets slowed in May from a month earlier as investors abroad sold stocks and foreign central banks reduced their holdings of Treasury bills.
Sydney Morning Herald  Sep 30  Comment 
The Bank of America said Wednesday that it had agreed to sell its long-term asset management business Columbia Management to Ameriprise Financial for approximately one billion US dollars.


Long-term assets are assets that cannot be converted to cash easily and hence are not used to fund everyday operations. Examples include: company cars, computers and investment in another company. Long term assets are one of two broad categories of assets reported on companies' balance sheets; the other is current asset.

Long-term assets are of three types:

Fixed assets

Fixed assets, also known as property, plant & equipment (PP&E), are used to produce the goods or services of the company and cannot easily be converted to cash. Fixed assets include equipment such as production machinery, computers, and motor vehicles, as well as land and buildings. These assets are referred to as "fixed" since they remain unchanged in the course of production -- unlike cash, which is used to buy raw materials, which in turn is used to produce finished products. Normally, fixed assets are subject to depreciation and/or amortization.

Often, fixed assets are tailored to be production specific and have little resale value. Oil rigs, for example, are built on site and are not reused after the oil well is depleted. They can be sold as scrap metal, but it is highly unlikely that a company can resell these rigs for the value of new rigs. However, companies record the value of these assets on their balance sheets at the purchase price (including the cost of installation) rather than at resale value. Similarly, computers decrease in value quickly and can only be resold at a fraction of their original purchase price.

On the other hand, land and buildings can increase or decrease in value depending on local real-estate conditions, but, in most cases, the principle of prudence only allows devaluation to be recognized in the balance sheet.

Fixed assets are treated as investments (instead of expenses) by companies and are depreciated over the course of their useful life.

Long-term investments

Any investment which has a horizon of one year or more is considered a long-term investment. Long-term investments are investments made by a company in order to secure an additional income stream or a strategic goal. Such investments can range from anything from buying a minority stake at another company to long-run hedges against oil prices. Berkshire Hathaway 's investment in Coca-Cola and Southwest Airlines' hedge against high oil prices are good examples of long-term investments.

In this case too, the company needs to exercise prudence in reporting the value of the investment. They are reported at the lower of purchase price or market value. Any gains from these investments are only recorded after the sale of the position. These gains are subject to capital gains taxes rather than income taxes.

Intangible assets

Intangible assets are assets which cannot be physically seen. Capitalized research expenses, goodwill, trademarks, copyrights, patents, brand recognition are all intangibles. Even though intangibles are not present physically, they are often more valuable than fixed assets. For example, Coca-cola and Apple would not be as valuable without their brands.

However, not all intangible assets appear on the balance sheet. In fact, in most cases, GAAP does not allow internally generated intangibles to show up on the balance sheet. On the other hand, if a company pays more than the book value to acquire another company, the difference would show up as goodwill in the acquirer's balance sheet. Also, research-based companies, such as drug-manufacturers, often capitalize their research and development expenses -- since, in theory, research can provides value long after it has been completed.

Generally, intangibles are amortized on a straight-line basis over their useful life (e.g. franchising agreement would be amortized over the life of the franchising contract). Amortization provides the companies with tax benefits since it is considered to be an expense (and thus reduces taxable income). However FASB rule 142 allows US companies to keep intangibles with indefinite life on their balance sheet.[1]

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki