To all the novices in the field of finance and accounting, you have probably been briefed about some of the most basic accounting terms. Of these, the term tangible assets is what we will be focusing on in this article. Don’t be afraid by the sound of it, it’s not nearly as scary as you may think it is. So, if you want the layman’s lowdown on what they are, read ahead.
What are Assets?
It is a mandatory procedure for companies to keep a record of their financial dealings. A reflection of these is seen in the form of a balance sheet. A balance sheet has two sides, one which records all the liabilities of the company, and the other, which records the assets of the company. Liabilities are basically what the company ‘owes’ and assets are what the company ‘owns’. In the assets section, there is a division into tangible assets and intangible assets. Let us delve deeper into these concepts below.
Just like the general meaning of the term, even in the finance and accounting of a company, anything that cannot be seen or touched is considered intangible. Hence, assets that a company owns, but cannot be seen, touched or measured using physical scales and measurements is called an intangible asset. Examples of intangible assets are goodwill, copyrights, trademarks, royalties, patents, franchises, etc. Since these cannot be seen, but still contribute to the total monetary ‘value’ of the company, they are termed as intangible assets, but assets nonetheless.
As opposed to the above, anything that can be seen, felt or touched in the physical form is tangible. Hence, all the assets that a company owns, which can be physically seen, felt, touched, and measured using physical scales, are said to be tangible assets. Given below are some features of tangible assets followed by some examples.
Enlisted below are some of the main features of tangible assets.
- Any asset that has a physical form which can be seen and touched is a tangible asset.
- Tangible assets generally form the major chunk of the assets section in a balance sheet.
- They are also called reproducible assets, hard assets or real assets of the company.
- One of the main features of tangible assets is that they are subject to depreciation from the minute they are purchased. For instance, if a vehicle is purchased for $4000 today, it will immediately become second-hand, and even if sold the very next day, will have a lower sale value.
- Tangible assets, because of their definite physical form, can be used to easily fix the ‘price’ of a company. However, the same feature acts as a negative, because it does not help to put a finger on the ‘value’ of a company. The total value will include intangible assets as well.
- Another important use of tangible assets is that they can be used as collateral or security for the purpose of obtaining a loan. In this sense, the secured loans that a company holds, are generally ‘secured’ against the tangible assets that are on the assets side of the balance sheet.
Given below is a list of the most commonly used and occurring tangible assets in the accounting field.
- Cash or Bank Deposits
- Real Estate
- Items included in the company’s inventory
- Accounts Receivable
Even though tangible assets may seem like one of the best ways to invest money, remember that little thing about their depreciation. So invest wisely and enjoy reaping the benefits.