Difference Between Tangible Assets and Intangible Assets

The term asset refers to any resource or economic entity that is owned or controlled by a business. It is anything that can generate positive economic value.

On a balance sheet of a business, the assets owned by the company are listed in monetary terms. An individual’s or a business’ money and other valuables can be covered while calculating one’s assets.

Having assets is critical, since they help a company generate revenue. Furthermore, assets increase the value of a business. They make a business run more smoothly. A business’s assets can be classified into two classes: tangible and intangible.

Tangible Assets vs Intangible Assets

The difference between tangible assets and intangible assets is that while a tangible asset can be seen, touched, or felt, which implies that they have a physical existence, an intangible asset cannot be seen, felt, or touched, implying they do not have a physical existence.

Assets that have a physical form and a finite monetary value are known as tangible assets. Although different markets will vary in liquidity, tangible assets can always be transacted for some monetary value.

Tangible assets are of utmost importance as they help determine the value of a company.

Intangible assets are resources that do not have a physical presence but have long-term value to a business. Companies’ reputation and copyright are considered intangible assets.

Businesses can use them to buy back destroyed tangible assets, such as equipment, and they have value since businesses own sole legal or intellectual rights to them.

Comparison Table

Parameters of Comparison	Tangible Assets	Intangible Assets
Definition	Tangible assets have a physical form and a finite monetary value.	Intangible assets are resources without a physical presence.
Ease of calculation	Their limited lifespan makes them easy to calculate.	Due to their subjective nature, they are difficult to calculate.
Indestructibility	As physical assets, they can be damaged by natural disasters.	Since they are non-physical assets, they are unaffected by natural disasters.
Worth	Tangible assets determine the firm’s current value.	Intangible assets increase the firm’s long-term value.
Examples	Land, vehicles, equipment, machinery, furniture, inventory, stocks, bonds, and cash.	Recognition, company reputation, copyrights, trademarks, patents, franchises, intellectual property, domain, licensing agreement, lease agreements, client relationships.

What is a Tangible Asset?

Tangible assets are assets with a finite monetary value and for which a physical form can be found. Generally, tangible assets can always be traded for some monetary value. Tangible assets have a transactional value rather than a theorized value.

Tangible assets make up a majority of the balance sheet. Most industries tend to rely heavily on these assets. Additionally, the value of these assets is usually easy to determine.

The term tangible assets refers to assets with a finite or discrete value, and in most cases, a physical component. An examination of a balance sheet will provide a breakdown of tangible assets by liquidity.

There are two categories of assets on the balance sheet: current assets and long-term assets. Assets that can be converted into cash within one year are regarded as current assets.

Assets that cannot be converted to cash within a year are considered long-term. Regardless of the type of asset, it is crucial for a company to have it in order to achieve its main goal, generating revenue.

What is an Intangible Asset?

As the name implies, intangible assets don’t have a physical existence. Intangible assets include goodwill, brand recognition, patents, trademarks, copyrights and other intellectual properties. Intangible assets can be created as well as acquired by businesses.

A company’s intangible assets are not recorded on the balance sheet and have no book value. Therefore, when a company is purchased, the purchase price is often higher than the book value of its assets.

The premium paid is recorded as an intangible asset in the balance sheet of the company that purchased it.

Intangible assets can be categorized into two categories: definite and indefinite. Intangible assets, such as brand names, are considered indefinite because they stay with the company for as long as it is operational.

A definite intangible asset would be a contract for the use of another company’s patent, without any plans to extend the agreement. As a result, the contract has a limited life and is classified as a definite asset.

It may not have the same obvious physical value as a factory or piece of equipment, but an intangible asset may nonetheless be an important part of a company’s long-term success.

Main Differences Between Tangible Assets and Intangible Assets

1. Tangible assets have a physical form (such as cash, factories, etc.), whereas intangible assets are non-physical (such as patents, copyrights, etc.)
2. Since tangible assets have a definitive value, they are easy to calculate while intangible assets are challenging to calculate since their value is subjective.
3. On balance sheets, tangible assets are reported, while intangible assets are not.
4. The tangible assets of a company will be lost during a natural disaster, but not the intangible assets.
5. Company’s tangible assets determine their current value, while company’s intangible assets determine their future value.

References

1. https://www.emerald.com/insight/content/doi/10.1108/14691930810845777/full/html?fullSc=1&mbSc=1
2. https://www.sciencedirect.com/science/article/pii/S0263237312001107