Tangible Assets vs. Intangible Assets: An Overview
There are two types of asset categories: tangible and intangible. Tangible assets are typically physical assets or property owned by a company, such as computer equipment. Tangible assets are the main type of assets that companies use to produce their product and service.
Intangible assets don't physically exist, yet they have a monetary value since they represent potential revenue. A type of intangible asset could be a copyright to a song. The record company that owns the copyright would get paid a royalty each time the song is played.
There are various types of assets that could be considered tangible or intangible, some of which are short-term or long-term assets.
Key Takeaways
Tangible assets are typically physical assets or property owned by a company, such as equipment, buildings, and inventory.
Tangible assets are the main type of assets that companies use to produce their product and service.
Intangible assets are non-physical assets that have a monetary value since they represent potential revenue.
Intangible assets include patents, copyrights, and a company's brand.
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Explaining Tangible Vs. Intangible Assets
Tangible Assets
Tangible assets are physical and measurable assets that are used in a company's operations. Assets like property, plant, and equipment, are tangible assets. Tangible assets form the backbone of a company's business by providing the means by which companies produce their goods and services. Tangible assets can be damaged by naturally occurring incidences since they are physical assets.
Current assets include items such as cash, inventory, and marketable securities. These items are typically used within a year and, thus, can be more readily sold to raise cash for emergencies.
Fixed Assets
Fixed assets are non-current assets that a company uses in its business operations for more than a year. They are recorded on the balance sheet asProperty, Plant, and Equipment(PP&E), and include assets such as trucks, machinery, office furniture, buildings, etc. The money that a company generates using tangible assets is recorded on theincome statementas revenue.Fixedassetsare needed to run the business continually.
Types of Companies With Tangible Assets
There are various industries that have companies with a high proportion of tangible assets.
Manufacturing: Companies involved in producing goods have tangible assets, including the automobile and steel industries. The factory equipment, computers, and buildings would all be tangible assets.
Technology: Technology companies that are involved in producing smartphones, computers, and other electronic devices use tangible assets to produce their goods.
Oil & Gas Industry: Companies within the oil and gas industry also own a large number of fixed assets that are tangible. For example, companies that drill oil own oil rigs and drilling equipment. Oil producers are extremely capital intensive companies, meaning they require significant amounts of capital or money to finance the purchase of their tangible assets.
Intangible Assets
Intangible assets are typically nonphysical assets used over the long term.Intangible assets are often intellectual assets, and as a result, it'sdifficult to assign a value to them because of the uncertainty offuture benefits.
Intangible assets are non-physical assets that add to a company's future value or worth and can be far more valuable than tangible assets. Both of these types of assets are initially recorded on the balance sheet, which helps investors, creditors, and banks assess the value of the company.
Intangible assets are intellectual property thatincludes:
Patents, which provide property rights to an inventor
Trademarks, which are a recognizable phrase or symbol that denotes a specific product and differentiates a company
Franchises, which are a type of license that a party (franchisee) buys to allow them to have access to a company's brand and sell goods under their name
Goodwill, which represents the value above and beyond a target company's assets that another company pays to acquire them
Copyrights, which represent intellectual property that's protected from being duplicated by non-authorized parties
Depending on the type of business, intangible assets may include internet domain names, performance events, licensing agreements, service contracts, computer software, blueprints, manuscripts, joint ventures, medical records, permits, and trade secrets. Intangible assets add to a company's possible future worth and can be much more valuable than its tangible assets.
Brand Equity
A brand is an identifying symbol, logo, or name that companies use to distinguish their product from competitors. Brand equityis considered to be an intangible assetbecause the value of a brand is not a physical asset and is ultimately determined by consumers' perceptions of the brand. A brand's equity contributes to the overall valuationof the company's assets as a whole.
Positive brand equityoccurs when favorable associations exist with a given product or company that contributes to a brand's equity, which isachieved when consumers are willing to pay more for a product with a recognizable brand name than they would pay for a generic version.
Companies can experience diminishing brand equity if their reputation is hurt by any negative actions.
For example, aconsumer might bewilling to pay $4.99 for a tube of Sensodyne toothpaste rather than purchasing the store brand's sensitivity toothpaste for $3.59 despite it being cheaper. The Sensodyne brand has positive equity that translates to a value premium for the manufacturer.
Negative brand equity occurs when consumers are not willing to pay extra for a brand-name version of a product.For example,producers of commodity products, such as milk and eggs, may experience negative brand equity because many consumers are not concerned with the specific brands of the milk and eggs they purchase.
Since brand equity is an intangible asset, as is a company's intellectual property and goodwill, it cannot be easily accounted for on a company's financial statements; however, a recognizable brand name can still create significant value for a company. Investing in the quality of the product and a creative marketing plan can have a positive impact on the brand's equity and the company's overall viability.
Types of Companies With Intangible Assets
Several industries have companies with a high proportion of intangible assets.They include the following:
Technology: Technologycompanies, particularly within the area of computer companies, copyrights, patents, critical employees, and research and development, are key intangible assets. Apple Inc. (AAPL) would typically have intangible assets.
Entertainment: Entertainment and media companies haveintangible assets such as publishing rightsand essential talent personnel. Intangible assets in the music industry, for example, involve the copyrights to all of a musical artist's songs. Musicians and singers can also have brand recognition associated with them. The music production company might own the rights to the songs, which means that whenever a song is played or sold, revenue is earned. Although these assets have no physical properties, they provide a future financial benefit for the music company and the musical artist.
Consumer: Consumer products and services companies have intangibles likepatents of formulas and recipes, along with brand name recognition, which are essential intangible assets in highly competitive markets. Coca-Cola Company (KO)isan example of an intangible asset with the value of itshighly recognized brand name that is virtually inestimable and is acritical driverin the Coca-Cola Company's success and earnings.
Healthcare: The healthcare industry tends to have a high proportion of intangible assets, including brand names, valuable employees, and research and development of medicines and methods of care.
Automobile: The automobile industryalso relies heavily on intangible assets, primarily patented technologies and brand names. For example, brand names like "Ferrari" are worth billions.
Special Considerations
Tangible assets are also the easiest to value since they typically have a finite value and life span. Tangible assets are recorded on the balance sheet initially, but as they are used up, they get carried over to the income statement.
Inventory, for example, is a tangible asset that when used, becomes included in the cost of goods sold for a company. Cost of goods sold represents the costs directly involved with the production of a good. As inventory is used up in the production process, it's recorded in cost of goods sold.
Fixed assets, such as plant and equipment, are the other types of tangible assets that are recorded on the balance sheet but as their useful life is reduced, that portion is expensed on the income statement in a process called depreciation.
Depreciation is the process of allocating a portion of the cost of an asset over the years as it is used to generate revenue for the company.Depreciation helps to reflect the wear and tear on tangible assets as they are used during their lifetime.
Intangible assets can be more challenging to value from an accounting standpoint. Some intangible assets have an initial purchase price, such as a patent or license. Similar to fixed assets, intangible assets are initially recorded on the balance sheet as long-term assets.
The cost of some intangible assets can be spread out over the years for which the asset generates value for the company or throughout its useful life. Whereas depreciation is used for tangible assets, intangible assets use amortization.
Amortization is the same concept as depreciation, but it's only used for intangibles. Amortization spreads out the cost of the asset each year as it is expensed on the income statement.
Tangible Assets vs. Intangible Assets Example
Below is a portion of the balance sheet for Exxon Mobil Corporation (XOM) as of Dec. 31, 2021, as reported on the company's annual 10-K filing.
Current assets are recorded at the top of the statement and reflect the short-term assets of the company. The long-term assets are recorded below "Total Current Assets."
The company's tangible assets are recorded as property, plant, and equipment, which totaled $217 billion as of Dec. 31, 2021. We can see that the company decreased its fixed assets in 2021 from $227 billion in 2020.
Intangible and other assets were $18 billion for 2021, which was an increase from $16.8 billion as of Dec. 31, 2020.
Is Goodwill an Intangible Asset?
Yes, goodwill is an intangible asset. Goodwill is associated when one company acquires another company. Goodwill is the portion of the purchase price that is above the fair market value of the assets and liabilities of the company that was bought. Goodwill is meant to capture the value of a company's brand name, customer base, relationships with stakeholders, and employee relations.
What Are the Main Types of Intangible Assets?
The main types of intangible assets include goodwill, brand equity, intellectual property, such as patents, research and development (R&D), and licensing.
Are Fixed Assets Considered Intangible or Tangible Assets?
Fixed assets are always considered tangible assets as they have a physical presence to them. Fixed assets include items such as property, plant, and equipment. Fixed assets are long-term assets that can be sold for cash and are depreciated over their useful life.
Assets can be tangible or intangible. An intangible asset is a non-monetary asset that cannot be seen or touched.Tangible assets are physical assets that can be seen, touched and felt.
Tangible assets are physical assets such as land, automobiles, and buildings.Intangible assets are nonphysical, including patents, financial claims, or contractual agreements.
Tangible assets are defined as those assets that have a definite monetary value and usually include a physical form. Tangible assets are of much importance to a business as they hold a certain value and are very essential for the daily operations of the business.
Examples of tangible assets are machinery, building, vehicles, land. Examples of intangible assets are intellectual property rights, copyright, company logo, goodwill, patents trademarks, etc.
An intangible asset is an asset with no physical form. It's a long-term asset that accrues value year over year. Examples of intangible assets include intellectual property, brand recognition and reputation, relationships, and goodwill.
The primary difference between tangible and intangible is that tangible is something which a person can see, feel or touch and thus they have the physical existence, whereas, the intangible is something which a person cannot see, feel or touch and thus do not have any of the physical existence.
Tangible costs include what a business pays its employees, inventory, computer systems, and land or equipment. A tangible cost differs from that of an intangible cost, or one that is not connected to a physical item, but rather to something structural or behavioral.
Which of the following statements accurately brings out the difference between tangible and intangible resources? Tangible assets can be bought on the open market, whereas intangible assets cannot be easily purchased.
Something that's literally tangible can be touched. A rock is tangible, and so is a broken window; if the rock is lying next to the window, it could be tangible evidence of vandalism. When we say that the tension in a room is tangible, we mean we feel it so strongly that it seems almost physical.
The main types of intangible assets are goodwill, brand equity, Intellectual properties (Trade Secrets, Patents, Trademark and Copyrights), licensing, Customer lists, and R&D. Usually, the values of intangible assets are not recorded in the balance sheet.
Tangible assets include cash, land, equipment, vehicles, and inventory. Tangible assets are depreciated. Depreciation is the process of allocating a tangible asset's cost over the course of its useful life.
Real estate is not personal property and cannot be included on a tangible personal property list. Other assets that cannot be included on a personal property list include: Money (cash)
: incapable of being touched : having no physical existence : not tangible or corporeal. intangible. 2 of 2 noun. : something intangible. specifically : an asset (as goodwill or a patent right) that is not corporeal.
Intangible assets are the resources a business owns that are not physical, but still provide real value. A common example of intangible assets is intellectual property held by a business, such as songs, designs, trademarks, software licenses, motion pictures, customer lists and franchises.
Since tangible assets are often purchased, they are much more easily valued than intangible assets. Tangible assets can be accounted for as either long-term or current assets depending on their estimated life. These types of assets include buildings, automobiles, physical inventory, furniture and machines.
Goodwill is an intangible asset that accounts for the excess purchase price of another company. Items included in goodwill are proprietary or intellectual property and brand recognition, which are not easily quantifiable.
What's the difference between tangible and intangible benefits? Tangible benefits are those that can be measured in financial terms, while intangible benefits cannot be quantified directly in economic terms, but still have a very significant business impact.
Intangible assets are capitalized or expensed depending on their cost. If the cost of these intangible assets meets or exceeds the following Intangible Asset Capitalization table, the intangible assets are capitalized and amortized over their associated useful lives.
Intangible assets are often intellectual assets, and as a result, it's difficult to assign a value to them because of the uncertainty of future benefits. Intangible assets are non-physical assets that add to a company's future value or worth and can be far more valuable than tangible assets.
Intangible assets can be bought and sold independently of the business itself. There's also a key distinction in how the two asset classes are amended once they're on the books. Because assets tend to lose some of their value over time, companies sometimes have to make periodic write-downs.
When intangible assets do have an identifiable value and lifespan, they appear on a company's balance sheet as long-term assets valued according to their purchase prices and amortization schedules.
Why Employees Are the Most Valuable Intangible Asset. Every organization needs to value its employees as an asset. Their employee's skills, abilities, knowledge, and experience are intangible and invaluable assets in securing the organization's future.
An intangible good is claimed to be a type of good that does not have a physical nature, as opposed to a physical good (an object). Digital goods such as downloadable music, mobile apps or virtual goods used in virtual economies are proposed to be examples of intangible goods.
Intangible assets have two main characteristics: (1) They lack physical existence, and (2) they are not financial instruments. In most cases, intangible assets provide services over a period of years so they are normally classified as long-term assets.
A tangible asset is an asset that has a finite monetary value and usually a physical form. Tangible assets can typically always be transacted for some monetary value though the liquidity of different markets will vary.
Land, gold, real estate, and equipment are the best tangible investments. Thus, it is worth spending money on them. If we consider the benefits of investing in land, the land turns out to be the most tangible investment. Land as an asset remains in a good condition for years and does not require much maintenance.
An intangible asset is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets. Intangible assets exist in opposition to tangible assets, which include land, vehicles, equipment, and inventory.
Tangible Objects means specimens, artifacts, articles, documents; non- domesticated plants or animals, including fish; and other things of historical, anthropological, archeological, industrial, scientific or artistic import that form the public museum collections and have intrinsic value to history, science, art or ...
An intangible asset with a useful life that can be determined with reasonable accuracy may be depreciated using the straight-line method over the asset's useful life. Depreciation is allowed only if the intangible is used in a trade or business or for the production of income.
Like all assets, intangible assets are expected to generate economic returns for the company in the future. As a long-term asset, this expectation extends for more than one year or one operating cycle. Intangible assets lack a physical substance like other assets such as inventory and equipment.
The good news? Your home falls in the asset category even if you have not paid it entirely off. The value assigned to your home can be the amount you paid to purchase it, the taxable value or the current market value based on how other houses are selling in your neighborhood.
Assets are things you own that have value. Your money in a savings or checking account is an asset. A car, home, business inventory, and land are also assets.
Examples of tangible personal property are numerous, just a few examples are furniture, vehicles, baseball cards, cars, comic books, jewelry, and art. Intangible personal property includes assets such as bank accounts, stocks, bonds, insurance policies, and retirement benefit accounts.
Personal property can be characterized as either tangible or intangible. Examples of tangible personal property include vehicles, furniture, boats, and collectibles. Stocks, bonds, and bank accounts fall under intangible personal property.
Intangible assets are the resources a business owns that are not physical, but still provide real value. A common example of intangible assets is intellectual property held by a business, such as songs, designs, trademarks, software licenses, motion pictures, customer lists and franchises.
An intangible asset is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets. Intangible assets exist in opposition to tangible assets, which include land, vehicles, equipment, and inventory.
The main types of intangible assets are goodwill, brand equity, Intellectual properties (Trade Secrets, Patents, Trademark and Copyrights), licensing, Customer lists, and R&D. Usually, the values of intangible assets are not recorded in the balance sheet.
The common way to determine the overall total value of a company's intangible assets is to subtract the company's book value [assets minus liabilities] from its market value. The difference is the value of the intangible assets.
1. not tangible; incapable of being perceived by the sense of touch, as incorporeal or immaterial things; impalpable. 2. not definite or clear to the mind. intangible arguments.
The two main types of assets are current assets and non-current assets. These classifications are used to aggregate assets into different blocks on the balance sheet, so that one can discern the relative liquidity of the assets of an organization.
Land is classified as a long-term asset on a business's balance sheet, because it typically isn't expected to be converted to cash within the span of a year. Land is considered to be the asset with the longest life span.
In short, yes—cash is a current asset and is the first line-item on a company's balance sheet. Cash is the most liquid type of asset and can be used to easily purchase other assets. Liquidity is the ease with which an asset can be converted into cash.
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