What are long-term assets?


The assets that will benefit the organization for much more than a year, whether they are tangible or intangible, are called long-term assets. Long-term assets can be both tangible and intangible, such as a company’s brand or patent, which cannot be touched. Long-term assets are recorded on the balance sheet at the acquisition price, which may or may not reflect the asset’s current worth.

Long-term assets are differentiated from current assets, which can be consumed, used, sold, or expended within one year through normal company operations. Fixed assets such as a company’s property, plant, and equipment (PP&E) are examples of long-term assets, also known as non-current assets.

The cost to run the factories does not vary much, regardless of the firm’s monthly or annual output, and they account for a large amount of the firm’s cost of goods sold (COGS). The factories would be considered long-term investments. Although there is no conventional accounting procedure for determining whether an asset is a long-term asset, it is widely understood that such assets must have a useful life of more than a year.

Long-term asset changes on a company’s balance sheet may indicate capital investment or liquidation. If a company is focused on long-term growth, revenues will be used to fund more asset purchases that will boost long-term earnings. Investors should be cautious, however, that certain firms will sell long-term assets to earn cash for short-term operational needs or even to repay loans, which might be an indication that the company is in financial trouble.

About the author

Pieter Borremans
By Pieter Borremans

Get in touch