What are non-current assets?

Non-current assets are items your business holds for longer than 12 months to help generate revenue over time. Unlike cash or stock you plan to sell quickly, these are resources you intend to keep and use in your day-to-day operations.

When you buy a non-current asset, you capitalise the cost on your balance sheet rather than recording it as an expense straight away. That means the purchase price appears as an asset, and you gradually reduce its value over its useful life through depreciation or amortisation.

The one-year threshold is what separates non-current assets from current assets. If you expect to use, sell or convert something to cash within 12 months, it's a current asset. If it will serve your business for longer than that, it's non-current.

Types of non-current assets

Non-current assets fall into three broad categories based on whether they have a physical form, exist as legal rights, or come from the natural world. Some businesses also hold long-term investments, such as shares in another company kept for more than 12 months, which sit alongside these categories.

Tangible assets

Tangible assets are physical items you can see and touch. They're sometimes called fixed assets or property, plant and equipment (PP&E). Common examples include office buildings, manufacturing machinery, delivery vehicles and office furniture.

Tangible assets lose value over time through wear and tear. You account for this through depreciation, which spreads the cost of the asset across its useful life.

Intangible assets

Intangible assets don't have a physical form but still hold value for your business. They include patents, trademarks, copyrights, goodwill and software licences.

Some intangible assets have a definite lifespan. A patent, for example, expires after a set number of years. Others, like a well-known trademark, can last indefinitely as long as you maintain them. You amortise intangible assets with a definite life over their useful period, while indefinite-life assets are reviewed regularly for impairment instead.

Natural resources

Natural resources include oil, gas, timber and mineral deposits that your business extracts and sells. These only count as non-current assets when your business is actively involved in extracting them.

As you extract natural resources, their value decreases through a process called depletion. This works similarly to depreciation but applies specifically to resources taken from the earth.

Non-current assets examples

Here are some common non-current assets that Hong Kong small businesses typically hold on their balance sheets.

Land and buildings, such as an office, warehouse or retail premises
Machinery and manufacturing equipment
Company vehicles, including vans and delivery trucks
Office equipment like computers, printers and phone systems
Patents that protect your products or processes
Trademarks on your business name or logo
Goodwill from acquiring another business
Long-term investments, such as shares held in another company for more than a year
Software licences that cover multiple years

The specific non-current assets on your balance sheet depend on your industry. A construction company might hold heavy machinery, while a tech startup might list software and patents as its most valuable long-term assets.

How to calculate non-current assets

To work out the total value of your non-current assets, add up the carrying value of every long-term asset your business holds. Work through these steps.

List every asset you expect to keep or use for longer than 12 months.
Record each asset at its original cost, including any costs to get it ready for use.
Subtract the accumulated depreciation or amortisation from each asset's cost to get its carrying value.
Add the carrying values together to get your total non-current assets.

For example, if your business owns machinery with a carrying value of HK$70,000 and a delivery van with a carrying value of HK$40,000, your total non-current assets come to HK$110,000. Accounting software can total these figures for you as values change through the year.

Current vs non-current assets

The main difference between current and non-current assets is how quickly you can turn them into cash. Understanding this distinction helps you read your balance sheet clearly and manage your finances with confidence.

Here's how they compare.

Liquidity: current assets convert to cash within 12 months, while non-current assets are held for longer than a year
Balance sheet placement: current assets appear in their own section near the top, while non-current assets sit in a separate section below
Value changes: current assets are usually recorded at their realisable value, while non-current assets are recorded at cost minus accumulated depreciation or amortisation
Purpose: current assets fund your short-term obligations, while non-current assets support long-term revenue generation
Examples: current assets include cash, accounts receivable and stock, while non-current assets include property, equipment and patents

It's also worth knowing about non-current liabilities. These are debts or obligations your business doesn't need to settle within 12 months, such as long-term loans, mortgages or lease commitments. On the balance sheet, non-current liabilities sit alongside non-current assets to give a fuller picture of your long-term financial position.

How non-current assets appear on the balance sheet

Non-current assets sit in their own section on the balance sheet, typically listed separately from current assets. They give lenders, investors and you as a business owner a snapshot of the long-term resources your business holds.

Each non-current asset is initially recorded at its original cost, including the purchase price and any costs to get it ready for use. Over time, accumulated depreciation or amortisation is subtracted from that original cost. The resulting figure is called the carrying value or book value.

For example, if you bought a piece of equipment for HK$100,000 and it has HK$30,000 of accumulated depreciation, its carrying value on your balance sheet is HK$70,000. Cloud accounting software can help you track these values and keep your balance sheet up to date.

Depreciation and amortisation of non-current assets

Depreciation and amortisation are how you spread the cost of a non-current asset over the time you use it. The process matches the expense to the periods when the asset generates revenue for your business.

Depreciation applies to tangible assets like machinery, vehicles and office equipment. You estimate how long the asset will be useful, then allocate a portion of its cost as an expense each year. A common approach is straight-line depreciation, where you divide the cost evenly over the asset's useful life.

Amortisation works the same way but applies to intangible assets with a definite lifespan, such as patents or software licences. You spread the cost over the period the asset provides value.

If a non-current asset loses value unexpectedly, for example through damage or a drop in market conditions, you may also need to record an impairment. This is a one-off reduction in the asset's carrying value to reflect its lower recoverable amount.

Why non-current assets matter for your business

Non-current assets play a central role in how your business operates and grows. They're the tools, property and rights that help you earn revenue over the long term.

From a financial planning perspective, non-current assets matter for several reasons.

They generate revenue over multiple years, supporting your long-term profitability
Lenders often accept non-current assets like property or equipment as collateral when you apply for a loan
The level of investment in non-current assets signals whether your business is growing, maintaining, or scaling back its operations
Depreciation allowances on non-current assets can reduce your taxable profit, lowering your tax bill

In Hong Kong, capital spending on non-current assets is not deducted from your profits straight away, but much of it qualifies for depreciation allowances under the Inland Revenue Ordinance. According to PwC's summary of Hong Kong tax deductions, plant and machinery attracts a 60% initial allowance in the year of purchase, plus an annual allowance of 10%, 20% or 30% on the reducing value of pooled assets, while commercial buildings attract a 4% annual allowance. Keeping accurate records of your non-current assets helps you claim the right allowances and meet your profits tax obligations.

Manage your non-current assets with Xero

Tracking non-current assets by hand gets harder as your business grows and values change each year. Xero brings your fixed assets, depreciation and balance sheet into one place, so you can see the carrying value of every long-term asset at a glance and keep your records ready for tax time. To try it for yourself, sign up and get one month free.

FAQs on non-current assets

These quick answers cover the questions Hong Kong business owners ask most often about non-current assets.

Are non-current assets a debit or a credit?

Non-current assets carry a debit balance, because assets increase with debits. They appear on the asset side of your balance sheet at their carrying value.

Is depreciation a non-current asset?

No. Depreciation is the method of spreading an asset's cost over its useful life. The running total, accumulated depreciation, reduces the carrying value of the non-current asset it relates to.

What is the difference between fixed assets and non-current assets?

Fixed assets are the tangible, physical non-current assets such as property, plant and equipment. Non-current assets is the wider category that also includes intangible assets and long-term investments.

Are non-current assets taxed in Hong Kong?

Non-current assets are not taxed directly. Capital spending on qualifying assets can attract depreciation allowances that reduce your assessable profits for profits tax.

Where do non-current assets appear on the balance sheet?

They sit in their own section of the balance sheet, separate from current assets, and are shown at cost less accumulated depreciation or amortisation.

Learn more about non-current assets

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Disclaimer

This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.

What are non-current assets?

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