Tangible Assets Show
Understanding tangible assets is very easy. Anything that can be touched is tangible. Tangible Assets are assets that have a physical presence and can be felt and touched. The main distinction between tangible and intangible assets is that one can be touched while the other exists only on record and balance sheet. Fixed and Current assets are two types of this asset. Current Assets Current assets are items such as inventory, cash, liquid financial instrument, or securities. These items are generally used within a year or two. They can be quickly converted into cash for emergencies. Fixed Assets The non-current assets that a business entity uses in its operations for more than a year or two. On the balance sheet, they go under Property, Plant, and Equipment (PP&E) section. The example of fixed assets is buildings, lorry (vehicles), machinery, furniture, etc. Fixed assets generate revenue, which is necessary for running the business operations.
Tangible assets examples list: Intangible Assets Intangible assets, the polar opposite of tangible assets, do not have a physical reality and cannot be touched or felt. Depending on the type of asset, they are definite or indefinite intangible assets. Intangible assets examples list:
Intangible assets examples list: An example of a definite intangible asset is a company patent because it will expire once the patent term expires. On the contrary, a firm brand name will remain throughout its existence.
“In the balance sheet, the most liquid assets are recorded first,” says Florence Bessette, Business Advisor, BDC Advisory Services. In current assets, for example, cash is recorded at the top of the balance sheet because it is the most liquid asset. Cash is followed by accounts receivable, because they should be collected in the normal course of business to settle current liabilities. What are intangible assets?Assets may be tangible or intangible. An intangible asset is a non-monetary asset that has no physical substance (i.e. it cannot be seen or touched). “Patents or goodwill are good examples,” says Bessette. Monetary assets are financial assets, such as cash, accounts receivable and investments, because they represent an entity’s right to receive cash or another financial asset from another party, the customer. Examples of intangible assetsWhat are tangible assets?A tangible asset is an asset that has physical substance. Examples include inventory, a building, rolling stock, manufacturing equipment or machinery, and office furniture. There are two types of tangible assets: inventory and fixed assets Examples of tangible assets
Fixed assets are tangible assets that the company holds to produce goods or provide services, or holds for rental or administrative purposes, and that the entity intends to use on a long-term basis. The same logic applies to intangible assets, such as patents. Because they are held on a long-term basis and will be used to generate economic benefits, they will also be recorded as non-current assets on the balance sheet. An asset is not an expense because a tangible or intangible asset will allow the company to generate future economic benefits throughout its use. Their cost is thus capitalized. What is the difference between tangible and intangible assets?The valuation of fixed assets differs from the valuation of intangible assets. This is because fixed assets normally have a finite life. Rolling stock is a good example of equipment that wears out over time and has a limited life, whereas this is not always the case for intangible assets, such as the trademark of an acquired entity. Valuing fixed assetsBecause the company holds fixed assets for long-term use, their acquisition cost is amortized. The company can use either the straight-line or declining balance method to amortize categories of fixed assets. Land, which is a tangible asset, is never amortized because its life is unlimited. To reflect wear and tear on its rolling stock, for example, as well as the rate at which revenue will be generated from its use, a company might decide to amortize the cost of a tractor-trailer on a declining-balance basis, at a rate of 30% per year, because it believes that as the tractor-trailer is used, it will be less productive and will require more maintenance and repair, and thus produce less economic benefit for the company. The balance sheet will then report the net book value of the asset (i.e. its acquisition cost less accumulated amortization), while the income statement will show the annual amortization expense. The amortization expense for the previous year will be included in retained earnings, under shareholders’ equity. The image below shows these links between the various financial statement documents. Example of a declining balance depreciationBecause the rate is declining, the amortization expense will be smaller in subsequent years. “Let’s say a company buys a tractor-trailer at a cost of $100,000 at the beginning of fiscal year 2020,” says Bessette. “It decides to amortize it on a 30% declining balance basis. During the first year of use, the $100,000 cost will be amortized at a rate of 30%.” The company will therefore record the net book value of this asset at $70,000 in the year of purchase on the balance sheet under non-current assets, and will add a $30,000 annual amortization expense in that same year on the income statement. In the following fiscal year, the amortization expense recorded in the income statement will be $21,000 ($70,000 x 30%). On the balance sheet, the net book value will be $49,000, which is the $100,000 cost less the $51,000 accumulated amortization. If the company had instead chosen to amortize the same asset on a straight-line basis over five years, the annual amortization expense recorded in the income statement would have been $20,000 per year until the end of its useful life.
Valuing intangible assetsUnlike tangible assets, some intangible assets do not have a useful life. “Take a trademark that’s been acquired, for example” says Bessette. “A trademark has no lifespan. It will exist as long as the company does. It is therefore difficult to amortize the cost of this trademark to reflect its use.” Therefore, it cannot be amortized. The intangible asset will then be carried at cost and impaired if there is an indication of impairment. To calculate its value, it will be necessary to use other methods. Let’s look at two examples.
Are there as many tangible and intangible assets in all industries?The number of tangible and intangible assets held by companies can vary significantly between industries. |