Tangible Intangible Assets
Then, everything has been an asset, and there are many ways to classify such an asset, with one of the most common being the division of assets into tangible and intangible. The only real difference between them is that the tangible assets are such that they can be seen and even touched due to a kind of physically manifested property, while the intangible assets are such that they cannot be seen or touched because they do not have any physical entity or form. However, they are equally important to revenue on the cash flow straight of a company. At this basic level of understanding what is tangible and what is intangible, let us go further into the subject.
What do you mean by the phrase “tangible assets”?
Tangible assets are assets that have a physical form, and accordingly, their value can be realized through money. Being physical property, they can be transacted through the market. As they can be seen with one’s eyes and touched by hands, the value of tangible assets can generally be determined more easily than in the case of intangible ones. This is so because tangibility falls in a more explicit category for expression in relation to borrowings and loans. Nonetheless, the value of tangible assets will deteriorate in the end as they are used. Those assets, which would be listed as part of long-term assets, usually on a company’s balance sheet, are found in assets, not revenue sections. Usually, costs for storage, insurance, etc., must be incurred in maintaining such assets. Now that we have understood tangible assets, let us mention types of tangible assets.
Examples of Intangible Assets:
Although tangible assets are very much physical and comprehend naturally regarding land or building, for instance, solving the scarcity of urban space, the intangible asset is understood mainly through services. The infrastructure facilities require significant research and progress, innovative and unique approaches for both conceptualization and design, thus leveling solutions for construction and deployment.
These tangible assets, such as land, building materials, capital stocks, and manpower, are inherently incapable of going anywhere; they will remain locked up at the service centers unless cleverly exploited in a knowledge economy. The creativity involved in intangible asset management is to release values of assets in excess of physical or logical delineations, most of which may appear to be virtual in many cases, and the cases in which they may be real assets having precious qualities may not be known at the outset.
What is the definition of intangible assets?
Intangible assets are immaterial; they cannot be seen or touched. They are created or acquired by a company or an individual. Like tangible assets, intangible assets are generally reported under long-term assets. Some intangible assets decrease in value with the passage of time, but in some circumstances these assets appreciate with the passage of time. Now, we have made some intangible assets as above; we will further discuss their examples.
Examples of Intangible Assets
The prominent ones are patents, trademarks, goodwill, brands, and other rights. They do not have a physical form but bring immense benefit to a company. For instance, the word Adidas is very well-known in the world, especially as far as footwear and the apparel category are concerned. If an individual took over Adidas, he would have to pay for the brand name, unlike usual payment for other assets. Moreover, the value of a brand name increases as time passes when it is catered to properly. It is one of the things that differentiates intangible assets from tangible assets, which depreciate over a period of time. In the pharmaceutical industries, many products have product and process patents. If they stumble upon a drug that has not been discovered yet, this involves product patenting. But in case a new technique is found for creating an already existent drug, a process patent will be required.
Differences Between Tangible and Intangible Assets
| Aspect | Tangible Assets | Intangible Assets |
| Physical Form | Have a physical form; can be seen and touched. | Lack physical form; cannot be seen or touched. |
| Examples | Land, machinery, equipment, vehicles, stocks, debentures, cash, and cash equivalents. | Brand names, goodwill, patents, and trademarks. |
| Value Decrease | Depreciates over time due to usage; recorded as depreciation in the profit & loss account. | Assets with a definite life (e.g., patents, copyrights) are amortised. Assets with an indefinite life (e.g., brand names, goodwill) undergo annual value assessment with impairments recorded if necessary. |
| Ease of Trade | Easier to buy and sell due to their physical nature. | More challenging to buy and sell due to their intangible nature. |
| Risks | Prone to physical risks like damage and theft. | Susceptible to obsolescence and infringement. |
| Ownership Trend | Common in manufacturing companies requiring plants and machinery for production. | Common in tech, entertainment, and pharmaceutical companies relying on patents and copyrights. |
Intangible Asset Evaluation
In valuating intangible assets, it is entirely relevant as to which method one selects since the asset in question is evaluated both in and outside the context. What follows are the most effective forms of intangible asset valuation:
- Cost Approach: The cost method can be used by a company to estimate how much an intangible asset actually is worth. It refers to the cost to replace or recreate the intangible asset in question. Suppose a company acquired software from another company. All expenses had to be borne by the software buying or building act, thus how expensive the cost of acquisition or development is assessed.
- Market Approach: It is a method that is based on comparisons. An action is intangible only when compared with intellectual property rights of the same class and associated market value. That is why if a company wants to determine the value of its trademark, it would have a similar price check with other trademarks from similar industries. This method is underscored by the presence of adequate market data of the same intangibles in the market.
- Income-Generating Method: This method considers the economic benefits obtainable from an intangible in the future, where some form of earnings determination or the applications of cash inflow expected from the asset are the main considerations within the valuation process. Simply put, the expected future cash flows of the asset are discounted based on an appropriate rate to determine their present value. It is usually applied to estimate copyright and patents.
- Qualitative Measures: So far, we have discussed all quantitative methods of valuing an intangible. But what about the qualitative measures? Sometimes, even qualitative measures are used in finding the value of an intangible. Quantitative methods are difficult to apply in the valuation of some form of intangible. Such is the case of a brand. The value of a brand is reflected via brand loyalty, reputation, brand recognition, and much other oriented-specific criteria. Such will have to be accessed through market research or even opinion of experts.
Conclusion
However, it could be tricky if one were to analyze the fact that a company’s true worth depends on its tangible and intangible assets while quite logically explaining the distinction between tangible assets and intangible assets. For example, we can perceive that the different methods that are available to value machinery are so different from the mechanisms applied in the valuation of land itself. That’s why we can employ different methods to value trademarks in companies. So, whether an asset is tangible or intangible, the understanding of it is what matters concerning the asset-value considerations.
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