What are Tangible and Intangible Assets?


What is Tangible Asset

A tangible asset has a physical form, that is, they are tangible assets that can be seen and touched. Tangible assets in the business environment include both non-current assets such as machinery, buildings, and land, vehicles, etc.) and current assets such as inventory. The opposite of a tangible asset is an intangible asset.

A tangible asset, like all assets, must afford reasonably priced future economic benefits and must be the result of a prior transaction (for example, a purchase).

In accounting, the tangible assets are put into the property, plant and equipment account. Tangible assets that have an estimated useful life of more than one year, the amortization process must be performed to distribute the cost of the asset between all the years of its useful life, instead of allocating the total expense to the moment it has Been purchased.

Examples of Tangible Assets:

Stock, furniture, Office equipment, machinery

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What is Intangible Asset

An intangible asset is an asset that has no physical form, is not material and therefore can not be seen or touched.

They come from the knowledge, skills, and attitudes of individuals and companies. There are many types of intangible assets such as patents, trademarks, copyrights, goodwill, internet domains, franchises, etc. The opposite of an intangible asset is a tangible asset.

Despite not having a physical nature, intangible assets are very valuable resources for companies. These are resources that belong to the company and that can generate a great competitive advantage if they are correctly managed.

The set of intangible assets available to a company at a given time is known as Intellectual Capital, as they generate great value thanks to the knowledge and skills of employees and the company itself. Most intangible assets are not reflected in the company’s traditional financial statements since they are very difficult to quantify.

An intangible asset, like all assets, must provide reasonably priced future economic benefits and must be the result of a prior transaction (for example, a purchase). According to international accounting standard, “an intangible asset is characterized as an identifiable asset, without physical substance and intended to be used in the production or supply of goods or services, for lease to third parties or for administrative purposes.”

However, there are non-identifiable intangible assets, which can not be acquired separately from the company and can have an indefinite life. 

Examples of Intangible Assets

The most common example of a non-identifiable intangible asset is goodwill, which is the know-how of the company, the influence of the brand, customer loyalty, and so on.

Some intangible assets have defined lives, such as patents, while others have an indefinite life, such as goodwill. In accounting, intangible assets of indefinite life are not amortized. However, intangible assets that have a definite-life are being amortized.