Non-Monetary Assets
The value of tangible or intangible assets continuously fluctuates due to the current market or economic conditions.
What are Non-Monetary Assets?
The value of tangible or intangible assets continuously fluctuates due to the current market or economic conditions. Therefore, they can be both tangible and intangible.
Non-monetary items cannot be given a fixed value since their value constantly changes. Thus they are put in the non-monetary category. These items cannot be easily converted into cash as they reduce or increase in value over time.
Tangible assets are those assets that have a physical form, whereas intangible assets are those that do not have a physical substance, but both have value.
These assets are crucial for a business to possess, some more than others. In addition, tangible assets are vital for a business as these assets are used to advance operations to generate income.
On the other hand, intangible assets are more significant for large businesses as it adds value to the company, apart from the regular workings of the business.
Examples of intangible non-monetary assets are as follows:
- Goodwill
- Copyrights
- Trademarks
Examples of tangible non-monetary assets are as follows:
- Inventory
- Plant, Property, and Equipment (PP&E)
Characteristics of Non-Monetary Assets
These assets cannot be converted to cash easily because of the continuous change in their value, thus giving them the name non-monetary. Essentially, these assets are not readily available to be converted into cash at an offered rate at any time.
These assets change their value due to depreciation, appreciation, market conditions, or other political factors. Thus, restatements are required in the financial statements to record these effects.
The country or the standards depends on what is being used in the company; there are various methods to record these restatements. The deciding factor for whether an asset is monetary or non-monetary is based on whether the asset can easily be translated into cash at a given rate.
The conversion duration doesn’t have to be accounted for since convertible assets to cash usually convert quickly. So if possible, it is a monetary asset; if not, it is a non-monetary asset.
Non-Monetary Assets vs. Liquid Assets
Liquid assets, in contrast to non-monetary assets, are those assets that are quickly convertible into cash within a given short period. Non-monetary assets cannot do this. Moreover, as mentioned above, these assets are not easily convertible into cash because their value changes rapidly.
Liquid assets are crucial for a business in case of any emergencies that arise due to the uncertainties that come with being involved in the business's daily operations.
It is to be noted that all liquid assets are not NMA. But on the other hand, none of the non-monetary assets can be liquid assets since they can't be converted into cash or cash equivalents.
The significant difference between these assets is that if the asset is easily convertible into cash within a short period, it is classified as a liquid asset. In contrast, if the asset takes longer to convert to cash but is still convertible, it is categorized as an NMA (including these liquid assets).
Examples of Liquid Assets:
- Cash
- Stocks
- Bonds
- Mutual funds
- Precious metals
- Inventory
- Accounts Receivable
- Treasury bills, and
- Treasury bonds.
Examples of NMA:
- Goodwill
- Copyrights
- Trademarks
- Inventory
- Investment in Associates
- Biological Assets
- Deferred Income, and
- Plant, Property, & Equipment (PP&E)
Non-Monetary Assets vs. Monetary Assets
Monetary assets are those assets whose value can be converted into cash. These assets are converted to a fixed rate at a given time but are not subject to a change in their recorded value in the financial statements.
On the other hand, non-monetary assets are those assets that cannot easily convert to cash.
This is because these assets are affected by various other factors, meaning the effect of these changes has to be shown or disclosed in the financial statements.
These can be recorded as separate notes to accounts in the report if required by the firm or other users of financial information.
Monetary assets are usually used to fund the company's daily operations since they are readily available or convertible to cash. In contrast, non-monetary assets are used to gain future benefits from it.
For example, cash is used to run the day-to-day operations, and the property, plant, and equipment are used to produce products that can use to make a profit.
Examples of monetary assets:
- Cash
- Bank deposits
- Trade receivables
- Savings accounts
- Treasury bills
- Commercial papers
- Money market accounts, and
- Lease investments
Examples of NMA:
- Goodwill
- Copyrights
- Trademarks
- Inventory, and
- Plant, Property, & Equipment (PP&E)
Non-Monetary Assets vs. Non-Monetary Liabilities
Non-monetary assets are not easily or readily convertible to cash due to fluctuations in market conditions, depreciation, or appreciation. As mentioned earlier, these effects must be recorded in the financial statements.
Depending on the country or the standards being used in the company, various methods are used to record restatements. The deciding factor for whether an asset is monetary or non-monetary is based on whether the asset can easily be translated into cash at a given rate.
In contrast, non-monetary liabilities are those liabilities that are an agreement to fulfill a duty without the involvement of cash. These are disclosed in the financial statements under the liabilities section.
Similar to assets, there are various methods, depending on the country or the standards being used in the company, to record these liabilities. These liabilities also have various terms and conditions linked to them. Those T&Cs must be mentioned specifically to the parties involved in the transaction.
Examples of NMA:
- Goodwill
- Copyrights
- Trademarks
- Inventory
- Investment in Associates
- Biological Assets
- Deferred Income, and
- Plant, Property & Equipment (PP&E)
Examples of non-monetary liabilities are Warranties Payable and Deferred Income Tax Credits.
Non-Monetary Assets FAQs
Gold can be either monetary assets or nonmonetary assets. Gold, held by a monetary authority such as the bank and held onto as a reserve asset, is a monetary asset.
Gold that is not held by a monetary authority and covers the foreign trade of gold worldwide can be classified as nonmonetary assets.
All intangible assets do not have monetary value and cannot be quantified easily into cash, thus falling into this category.
Non-Monetary gold covers the foreign trade of gold worldwide and is not held by any authority, which would be classified as monetary gold.
A non-monetary item is an item whose value can constantly change and thus is not quantifiable like monetary items or convertible to cash.
Examples of nonmonetary items: Inventory and Plant, Property & Equipment (PP&E)
When companies deal in a business transaction, they exchange non-monetary/nonfinancial assets rather than traditional cash for multiple reasons, such as shortage of cash or better utilization of company assets.
Inventory is a nonmonetary asset because it is an asset that becomes unusable over time, thus, putting it under this category.
Authored & researched by Benet Thomas | LinkedIn
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