What is a Long-Term Asset?
A long-term asset is an year.that a company expects to sell or otherwise recognize the economic value of after more than one
How Does a Long-Term Asset Work?
An asset must provide reasonably estimable future economic benefits, must be controlled by the owner, and must be the result of a prior event or transaction (such as a purchase).
For example, let’s assume that XYZ Company intends to purchase an office building for $10 million. When the company executes a legal purchase agreement with the seller, XYZ Company have a place from which to conduct its business operations over the next 10 years, and it control what happens to the building from that point forward. Thus, XYZ Company acquired a $10 million asset and should reflect this asset on its balance sheet as a long-term asset.
Assets are presented on the balance sheet in order of their liquidity. If a company expects to sell or otherwise recognize the economic value of an asset within one year, the asset is generally classified as a current asset on the balance sheet. on hand is a common current asset. Property, plant and equipment (such as the office building above) are common long-term assets.
Most long-term assets lose value as they age -- they depreciate (amortization is the term used when referring to intangible assets). The rate at which a company chooses to depreciate its long-term assets may result in a book value that differs from the current market value of the assets.
Why Does a Long-Term Asset Matter?
Information about a company’s long-term assets is a key component of accurate financial reporting, business valuation, and thorough financial analysis. Although the Financial analysts must also carefully study the notes to a company’s financial statements.Standards Board, the Securities and Exchange , and other regulatory bodies define how and when a company’s assets are reported, companies may employ a variety of accepted methods for recording, depreciating and disposing of assets, which is why