Tangible Assets

Tangible assets are assets with significant value and are available in physical form. It means any asset that can be touched and felt could be labeled a tangible one with a long-term valuation. These fixed assets help businesses manufacture/produce goods and products for enhanced sales. Moreover, companies can also use these assets as collateral for loans.

A tangible assets examples list includes cash, inventory, plant, machinery, building, etc. These differ from intangible ones, which have non-physical existence, but they still hold value. The non-physical assets include patents, trademarks, intellectual property, goodwill, etc.

• Tangible assets are physical assets with significant value, which help businesses produce and provide goods and items for sale.
• These assets are likely to depreciate over time. Thus, businesses must focus on their maintenance to uphold their value in the long run.
• The physical assets are of two types – current assets (can be sold and exchanged for money) and fixed assets (cannot be sold but helps in the production process).
• It is opposite to intangible properties, which signify non-physical existence like goodwill, patents, trademark, etc.

Tangible assets are physical properties that possess a definite value. Therefore, these assets play an important role in making business organizations productive. For example, a plant, building, machinery, equipment, etc., form part of fixed physical assets and help make businesses more productive. In addition, the presence of these assets facilitates the manufacture and production of goods and products. Thus, they have a vital role in ensuring profitability for a business.

These assets help produce and provide goods and services, contributing to the businesses' growth and cash flow. In addition, firms can exchange these assets for money to raise cash during emergencies or financial crises. Moreover, they can use these physical assets as collateral/security to back finances they obtain from lenders.

The physical assets are subject to depreciation, which means they lose their value over time. As a result, the companies using those sets of assets are eligible to receive tax benefits without any cash outflow marked from the business.

There are two types of tangible properties – Current assets and fixed assets.

As current assets are liquid assets, companies can sell them at the end of a financial year. These can be cash or physical items used or sold to increase cash flow and repay debts and other liabilities. Stocks are one of the best examples of a current physical asset.

On the other hand, firms cannot sell fixed assets easily, given the long-term investments involved. Yet, these are the physical items that help enhance the productivity of any business and make it function smoothly. Machinery, plant, or building are some of the most common fixed assets examples.

Physical assets hold significant value. However, their liquidity will vary as per market variations and fluctuations. Moreover, the physical existence of tangible properties makes businesses ensure their proper maintenance. Therefore, they have to conduct the maintenance tasks for the business plants, tools, equipment, machinery, and other assets to uphold their value and continue functioning smoothly for better and more efficient production output.

In short, tangible assets valuation completely depends on their treatment and maintenance for efficient functioning.

Recording these assets in accounting is a crucial affair. As fixed assets, these properties fall under the long-term asset section in an organization's balance sheet. The records list these assets as a number or multiple asset classification paired with accumulated depreciation contra accounts. 

On the contrary, current assets are included under the short-term asset section as they are likely to be sold and converted into cash. Thus, they are transferred into the revenue section as soon as they are liquidated.

These are recorded on the balance sheet at their original cost. However, one can add all the costs involved in getting the asset ready for its intended use. These costs might include legal fees, transportation, necessary testing, and non-recoverable taxes. Property, Plant, and Equipment costs are not recorded at their market value.

Let us consider the following tangible assets examples to understand how this concept works:

Example #1

A high cap company holds a large percentage of fixed assets, including plant, equipment, and machinery. The companies operating in the oil and gas sector or real estate industry tend to have many tangible properties. Thus, they produce more output to generate higher sales, meet market demand, and ensure better revenue.

Example #2

A service-based company, such as software production units, has tangible properties that help them implement its innovative ideas correctly. However, these firms are more into having intellectual properties. They own patents and copyrights for the products and ideas they come up with. Some examples of such service companies are Microsoft, Infosys, etc.

Tangible assets and intangible assets are two opposite terms widely used in the financial perspective. Let us have a glance at the differences between the two concepts:

This article is a guide to what are Tangible Assets, their meaning & valuation. Here we explore tangible vs intangible assets along with some proven examples. You may also have a look at the following recommended articles on basic accounting -

• Types of Intangible Assets
• Tangible vs. Intangible Assets
• Asset Allocation
• Is Account Receivable a Current Asset?