How Do Tangible and Intangible Asset Differ from Each Other?

How Do Tangible and Intangible Asset Differ from Each Other?

Assets refer to anything that has some value. They can be owned by an individual or a company with an expectation to bring them economic benefit in the future. Assets are something basic that businesses should own to ensure that they can function smoothly, and they represent the value of ownership that a company can convert into cash. As assets play a great role in any business, handling accounting tasks associated with assets carefully is crucial. The financial statements of a company will not be able to show its financial position clearly if the company cannot recognise the values of its assets accurately. Hence, do not hesitate to engage accounting services in Johor Bahru if you need help on this matter.

There are two major classifications of assets, which are tangible assets and intangible assets. Tangible assets are the long-term resources that a company owns, and they have specific economic value. The company needs them to run daily business operations, and there is a risk where these assets may cause losses due to theft, fire, accidents or others. On the contrary, intangible assets are the incorporeal assets that have specific economic value and economic life. This kind of assets is predicted to bring future cash flow (Also see Avoid These Mistakes When Forecasting Cash Flow) and earnings.

Tangible assets present physically and are perceptible by touch. Contrarily, intangible assets do not exist physically, and they are abstract. Tangible assets have a useful economic life, and after this, the assets will become obsolete. On the other hand, the company should report intangible assets at their respective net book value (Also see Are Market Value and Book Value the Same?). The company can calculate this value by subtracting the accumulated amortisation from the gross value of the asset.

As time passes, both the tangible assets and intangible assets suffer from a decrease in value. For the former, the term for the decrease in value is depreciation, while the term amortisation is used on the latter. Besides, tangible assets have salvage value (the assets’ scrap value after they are completely depreciated), while intangible assets do not.

From the perspective of the ease of liquidation, it is easier for you to convert tangible assets into cash if any emergency happens. On the contrary, you may find it hard to sell the intangible assets you own. Also, another difference between them is whether they can be used as collateral. Creditors would accept tangible assets as collateral but not intangible assets when they are granting a loan to a company.