Tangible Assets

What are Tangible Assets?

Tangible Assets Definition – “Any physical assets owned by a company which can be quantified with relative ease are usually known as tangible assets”.

These can include any kind of physical properties such as a piece of land which might be owned by a company along with any structure built upon it, including the furniture, machinery, and equipment housed in it, which is being used to carry out business operations.

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List of Tangible Assets Examples

Property, Plant, and Equipment (PP&E) are long-lived tangible assets used in the production or sale of other assets. Cost of PP&E includes all expenditure (transportation, insurance, installation, broker cost, search cost, legal cost) that are necessary to acquire and ready them for use. If the plant is constructed, all the material, labor cost, overheads, interest cost during construction included in the Cost of PP&E.

Below is the list of examples

1. Property – Property includes the land, building, office furniture etc
2. Plant – Plant is the physical space where the workers work or provide services
3. Equipment – This refers to the machinery, vehicles and other tools & equipment used to produce
4. Inventory – This includes all types of inventory like the finished goods as well as WIP and raw material inventory

 

Recording PP&E on the balance sheet

You record PP&E (Tangible assets) on the balance sheet at their original cost. You add to this all the costs involved in getting the asset ready for its intended use, such as legal fees, transportation to the current location, necessary testing and non-recoverable taxes. You do not record PP&E at its market value.

Tangible Assets Examples in Companies

Depending on the type of the company these assets may or may not make the largest asset amounts. Here are the two tangible asset examples –

• High Capex companies like Oil and Gas companies, Real Estate Companies, Car Manufacturers have a large percentage of total assets tied up in Plant, Equipment, and Machinery. Therefore, you will find a large amount of tangible assets on the balance sheet.
• Services companies like Microsoft or Infosys will have far fewer assets. Such companies own a large number of intangible assets like patents, copyrights etc.

Difference Between Tangible Assets and Intangible Assets:

Another type of assets which could be owned by a business is classified as intangible or non-physical assets, which can be difficult to quantify. These can include any trademarks, copyrights, and patents as part of the intellectual property owned by a business. Intangible assets goodwill and brand recognition are also often considered as part of intangible assets, for which there is no specific measure and can only be evaluated subjectively.

It is obvious how intangible assets goodwill differs from such assets in the very manner they manifest, and thus must be considered separately for all practical purposes. For instance, physical assets are typically vulnerable to wear and tear, might be damaged or stolen and are thus often liable to any form of losses or reduction in their value as a result of the same.

Intangible assets goodwill are more or less immune to physical damage in any form, but their value could be affected in other ways, for instance, brand recognition or brand equity of a business could be badly affected by gaining bad popularity over a spurious, faulty or damaged batch of products produced by a business. It could be quite difficult to assess the extent of damage to brand equity which might be caused due to such an event.

How are Tangible Assets Valued?

Value of Tangible Current Assets:

The potential total cost of tangible current assets usually includes not only the amount for which it is purchased, as recorded in the relevant invoice as part of the inventory bought, but also includes any additional costs incurred due to transportation, for its installation and for insurance purposes as well.

Value of Tangible Fixed Assets:

As already discussed, tangible fixed assets have their value spread over its expected lifespan instead of being accounted for only in the year when they might be purchased. A part of their value is being accounted for every year in the accounts of a firm, known as depreciation, which also stands for the monetary worth reduced after a certain period of use.

Conclusion:

This is a form of an integral and important part of assets owned by a business and play a critical role in carrying out business operations effectively. They way their worth might be calculated might be a matter of consideration, however, as fixed assets are depreciated over time and depending on the method of depreciation adopted, the figure could vary from one business to another. Then again, such assets have to be separated from intangible ones to be able to evaluate and measure their worth with any amount of accuracy and this is exactly what net tangible assets is all about.

Having said that, the relevance of measures associated with tangible assets obviously have their limitations due to the difference in levels of intangible and tangible assets for different industries. Certain industries tend to have greater intangible assets goodwill and hence a lower number associated with net tangible assets would not represent the real picture while assessing a company from an asset-based perspective. Keeping all the possible uses and limitations in mind, tangible assets and related measures can be employed with good effect.

Recommendation Article

This has been a guide to what is tangible assets – definition, examples and list of tangible assets. Here we also discuss the difference between tangible assets and intangible assets and how they are valued. You may also have a look the following recommended articles on basic accounting –

• What is Raw Material Inventory?
• Disadvantages of Intangible Assets on Balance Sheet
• Learn Basic Accounting
• Additional Paid-in Capital Examples
• What is Amortization of Intangible Assets?
• Accrual Accounting Basis