UNDERSTANDING ACCOUNTING TALK 9: Noncurrent Assets

Among Noncurrent Assets which can have great value are Intangible Assets. These are long-lived assets which are not in physical form, but which are useful in the operations of a corporation or small business. These give the business a comparative advantage over others. Some examples are: a trademark or trade name, a copyright, a patent or a franchise. In the web, a prime example is the domain name.

In the Philippines, the Sony Corporation went to considerable legal expense to stop a microenterprise, Sony Sari-Sari Store (a neighborhood odds-and-ends store), from continuing to use the name Sony. The case was disputed all the way to the Supreme Court which ruled that the lady who owned the store had a right to the name since it was actually the name on her birth certificate. The Supreme Court probably decided that the lady had more right to the name than the global corporation.

If the Sony Corporation really wanted to keep the name Sony exclusively for their use, they could have offered the lady a financial consideration for her to give up the name of her store. Conceivably, the lady could have settled for a considerable amount. As it happened, the Sony Sari-Sari Store continued on its merry way and lived happily ever after.

Land is a Noncurrent Asset which can lose value, just like buildings, furniture & fixtures, equipment. The loss in value can be the result of an economic depression, the real estate market crashing, or a high end residential neighborhood going to seed because of the incursion of low end shops and warehouses (in places where the local authorities are lax in enforcing zoning ordinances).

By the same token, Land can appreciate in value when a significant development is situated in the neighborhood (for example, the construction of a grand shopping mall).

The International Accounting Standards Board thus prescribes the appraisal of land every two years in order for the Balance Sheet to reflect more accurately the financial condition of the business.