What are Tangible Assets?
Tangible Assets are defined as any physical assets owned by a company that can be quantified with relative ease and are used to carry out its business operations. These can include any kind of physical properties such as a piece of land that might be owned by a company along with any structure built upon it, including the furniture, machinery, and equipment housed in it.
List of Tangible Assets Examples
- Property – Property includes land, building, office furniture, etc
- Plant – Plant is the physical space where the workers work or provide services
- Equipment – This refers to the machinery, vehicles and other tools & equipment used to produce
- Inventory – This includes all types of inventory like the finished goods as well as WIP and raw material inventory
Tangible Assets Examples in Companies
Depending on the type of company, these assets may or may not make the most significant 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 assetsTotal AssetsTotal Assets is the sum of a company's current and noncurrent assets. Total assets also equals to the sum of total liabilities and total shareholder funds. Total Assets = Liabilities + Shareholder Equity 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.
How to Record Tangible Assets?
Tangible assets are recorded 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.
Difference Between Tangible Assets and Intangible Assets:
Another type of asset which could be owned by a business is classified as intangible or non-physical assets, which can be challenging 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. Still, their value could be affected in other ways. For instance, brand recognition or brand equity of a business could be severely affected by gaining bad popularity over a spurious, faulty, or damaged batch of products produced by a business. It could be quite tricky 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 assetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc. 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 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.
Tangible Assets are 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. The 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 are all about.
Tangible Assets Video
This article has been a guide to what is tangible assets and its definition. Here we discuss how to value tangible assets along with examples, list, and how it differs from intangible assets. You may also have a look at the following recommended articles on basic accounting –