non-current assets, e.g. property (land and buildings), machinery

Non‑current assets

Think of a company as a big house. Non‑current assets are the parts of the house that stay for a long time – the foundation, the roof, the garden. They are not sold or used up within a year. In accounting, they are split into:

• Property, plant and equipment (PPE) – land, buildings, machinery
• Intangible assets – patents, trademarks, goodwill
• Long‑term investments – shares, bonds held for more than a year

Property (land and buildings) 🏠

Property is the real estate owned by the business. It includes:

1. Land – the ground itself (never depreciated)
2. Buildings – factories, offices, shops (subject to depreciation)

Analogy: Land is like the soil of a garden – it stays forever. Buildings are like the garden beds – they need care and will eventually wear out.

Example: A company buys a factory for £1,000,000. The land costs £300,000 and the building £700,000. The building will be depreciated over 20 years.

Machinery ⚙️

Machinery is the equipment that helps produce goods or deliver services. It is a type of PPE and is depreciated over its useful life.

• Production machines – lathes, presses
• Office equipment – computers, printers (often classified separately as intangible in some accounts)

Analogy: Think of machinery as the tools in a workshop. Each tool has a lifespan; after many uses, it becomes less effective and needs replacement.

Example: A machine costing £50,000 is expected to last 10 years. Annual depreciation = £50,000 ÷ 10 = £5,000.

Exam Tip 💡

• Remember that land is never depreciated but buildings and machinery are. • When calculating depreciation, use the straight‑line method unless the syllabus specifies otherwise. • In the statement of financial position, non‑current assets appear on the left side (assets) and are listed in order of liquidity (how quickly they can be converted to cash). • Check the footnotes – they often explain the useful life and depreciation method used.

Quick Check ??

A company buys a new machine for £120,000. The machine is expected to last 12 years. What is the annual depreciation expense using the straight‑line method?

Answer: £120,000 ÷ 12 = £10,000 per year.

Table: Classification of Non‑current Assets