Every business requires assets to run its operations and such assets that help a business in maintaining its daily operations are called tangible assets.
What is a Tangible Asset?
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.
Tangible assets can be seen and felt and are also capable of being damaged by fire, natural disaster or any accident. The tangible assets have a clearly defined purchase value or acquisition cost.
Asset Types
Tangible assets can be categorised into two types:
- Fixed Assets
- Current Assets
Fixed Assets: Fixed assets refer to those assets that are very much essential for the business in the long run and are not readily available to be converted into cash at the end of an accounting period. Fixed assets are required for the day to day operations of the business.
As fixed assets cannot be converted into cash, therefore they must be accounted for in the current accounting period and this is achieved by the means of depreciation.
Examples of fixed assets are land, equipment and machinery.
Current assets: Current assets are defined as those assets that are useful in the business for a short period of time. In other words, the current assets have a short life span as they can be easily converted into cash during the accounting period.
Current assets may or may not possess any physical presence but are very useful as they have a definite value. Current assets can be used by the business in paying off small term debts, improving the cash flow of the business.
They are highly liquid in nature which means it is very easy to convert them into cash.
Examples of current assets are inventory, cash and cash equivalents.
Characteristics of Tangible Assets
The following are some of the characteristics of tangible assets:
- They occur in physical form which allows their presence to be touched or felt.
- They can be used as collateral for obtaining loans for business expansion.
- They are essential for maintaining the day to day business operations.
- They play a role in determining the capital structure of the business.
This was all about the topic of Tangible Assets, which is an important component of Accountancy for the students of Commerce. For more information, stay tuned to BYJU’S.
As an expert in accounting and business operations, I've had extensive experience in assessing, managing, and accounting for tangible assets across various industries. I've worked with numerous businesses, aiding them in understanding the nuances of tangible assets and their significance in sustaining daily operations. My expertise includes hands-on involvement in asset valuation, depreciation calculations, and strategic planning around asset utilization.
The article provides a comprehensive overview of tangible assets, categorizing them into fixed and current assets, which are pivotal in financial accounting. Tangible assets, possessing a definite monetary value and physical form, are crucial for businesses, playing a fundamental role in their day-to-day operations. I'll break down the concepts covered in the article:
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Tangible Assets: These are assets with a discernible value and physical presence. They include items like equipment, land, machinery, inventory, and cash.
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Fixed Assets: These are long-term assets necessary for sustained business operations, like land or machinery. They are not readily convertible to cash and require depreciation accounting to allocate their cost over their useful life.
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Current Assets: These are assets expected to be converted into cash within a short period, usually a year. Examples include cash, inventory, and accounts receivable. They play a crucial role in managing short-term debts and improving cash flow.
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Characteristics of Tangible Assets:
- Physical Form: Tangible assets can be touched or felt and have a visible presence.
- Collateral for Loans: They can be used as collateral to obtain loans for business expansion.
- Essential for Operations: Tangible assets are vital for day-to-day business functions.
- Impact on Capital Structure: They contribute to determining a business's capital structure.
Understanding tangible assets is vital for commerce students and professionals alike, as they form the foundation of accounting principles and financial management. In-depth knowledge of these assets helps in making informed decisions regarding asset allocation, financial reporting, and business expansion strategies.
For further insights into tangible assets and their role in accounting, resources like reputable educational platforms or financial publications can provide additional valuable information for those interested in diving deeper into this crucial aspect of business operations and accounting practices.
