What are long term assets?

A

Long term assets are the company’s assets, which are not expected to be used up in one year (or one operational cycle if it is longer than a year). They are also not intended to be resold to customers or quickly converted to cash.

Explanation:

A given company can have different types of assets. Some are expected to be used up, converted into cash, or resold to customers as part of its business, such as its inventory, money stockpiles, or account receivables. Some assets are expected to stay with the company for longer and generate value over a long time. The company does not plan to sell these assets to its customers, replace, nor liquidate them. Such assets are called long-term assets, and they are divided into three groups: tangible, intangible, and natural resources.

An excellent example of a tangible long-term asset would be a production plant, the land it is built on, the machinery inside it that the company’s employees use to make products, and the trucks that the company uses to deliver its products to the customers. Tangible assets are physical objects that are used for a long time. While they can be sold, that is not their primary purpose. Intangible long-term assets include copyrights, patents, and investments in other businesses. Finally, natural resources are self-explanatory and can consist of oil deposits, coal mines, or lakes full of freshwater.

While the word ‘long-term asset’ implies a prolonged usage, the assets are not infinite. Tangible assets are subject to depreciation due to wear and tear or obsolescence, natural resources can be depleted, and copyrighted intellectual property can be transferred into the public domain. Every company has to weigh the potential benefits of the long-term assets against how quickly they would run out, and how costly they would be to replace or keep in working order.

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