Introduction to Tangible and Intangible Asset

Introduction to Tangible and Intangible Asset

Tangible Assets

A tangible asset is a solid property that you can feel by touch. People often use this term with fixed assets (Also see Disposal of Fixed Asset in a Company) like buildings, machinery, office equipment, vehicles and others. A tangible asset is not the suitable term to use if you are describing shorter-term assets, for example, inventory (Also see Periodic Inventory System and Perpetual Inventory System), as you are going to use these items for sale, or you want to convert them into cash. Tangible assets account for the vital competitive advantage of some businesses, particularly if they are using the assets effectively to generate sales.

Some people will use tangible assets as collateral if they are applying for loans. This is because those assets tend to possess robust and long-term valuations which are vital to lenders. These assets usually need a substantial amount of maintenance to preserve their values and their capability of manufacturing products, and they probably need insurance coverage.


Intangible Assets

An intangible asset is not physical, and it tends to have a useful life which is more than a year. If you have identified that an intangible asset has a useful life, then you should amortise its book value (Also see Are Market Value and Book Value the Same?) over its useful life. At any point, if there is any judgement which states that the residual value of an intangible asset is going to drop below its carrying amount (Also see How to Calculate the Carrying Value of Assets?), you should recognise the difference as an impairment expense in that particular period. This indicates that you should not spread that impairment charge over a few different periods. Some instances of intangible assets include:

Marketing-related intangible assets

o Internet domain names

o Trademarks

Customer-related intangible assets

o Customer lists

o Client relationships

o Backlog of orders

Artistic-related intangible assets

o Film and television programs

o Musical works

o Performance events

o Literary works

Contract-based intangible assets

o Usage rights (for example, land use rights)

o Licensing agreements

o Franchise agreements

o Service contracts

o Employment contracts

Technology-based intangible assets

o Trade secrets (for example, processes, formulas and practices)

o Patented technology

o Computer software

It is normal if you feel confused about tangible and intangible assets if you are not familiar with accounting. In such a situation, hiring an accounting firm in Johor Bahru is an excellent choice for you so that you can always stay on top of your finances.

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