Difference Between Tangible vs Intangible
Tangible means anything which we can touch, feel, and see. Any tangible assets are assets that have physical existence and physical property; it can be touched—tangible assets mostly associated with fixed assets. Examples of tangible assets include Land, Building, Machinery, Equipment, Cash, Stock, Plant, any property that has long term physical existence or purchased for the use of business operations and not for sale, Vehicles, etc. An Intangible Asset is assets that do not have a physical existence. It is not possible to see, touch or feel these assets. Intangible Asset’s useful life is usually greater than one year. Example of Intangible Assets includes Goodwill, Patent, Brand, Copyright, Trademarks, and Permits Patent, Brand, Copyright, Trademarks, and Permits, etc.
Types of Assets
Assets are divided into 3 main categories as per below.
Let discuss the asset category of Physical existence in detail.
Physical Existence:
In this category, assets are divided based on their existence. Assets in this category further divided into two subcategories.
- Tangible Assets
- Intangible Assets
Tangible Assets
Tangible assets are used as collateral for loans since such assets have a long term valuation that is valuable to a lender. Tangible assets are purchased at a measurable price; it is much easier to value Tangible assets than Intangible Assets. Tangible assets required maintenance to support their values and production capabilities. Tangible assets easily sold to raise cash in emergencies. High-risk industries such as banking and finance use their tangible assets to reassure investors as this asset can always be liquidated and converted into cash.
Intangible Assets
Intangible Assets further divided into two categories (a) Indefinite (b) Definite. Any Intangible asset that stays longer with the company is called Indefinite Intangible assets, for example, the company’s brand name which stays as long as it continues operation. Any Intangible asset which has limited life is called as Definite Intangible assets. For example, legal agreement to operate under another Company’s patent with no plan of extending the agreement.
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Intangible assets cannot be used as collateral to raise the loan. The automobile industry has several Intangible assets, including patents, research, development, brand name, etc.
Let’s look at the example of tangible and intangible assets,
Its just an example created by Taking XYZ as a person here and he is having a business of car manufacturing so for him tangible assets are machinery, Building, all types of equipment used for the production of car, inventory, etc.
Now let say XYZ person need a small part of the car for a production car, so he contacted to the person who is having small part production business, and he agrees that he will supply the small part to XYZ person manufacturing unit, but the value of that contract is not clear at this moment so this contract is an intangible asset for XYZ person at this moment because its value yet not fix and its just and legal agreement between two parties which not physical in nature.
Head to Head Comparison between Tangible vs Intangible (Infographics)
Below is the top 8 difference between Tangible vs Intangible
Key Differences between Tangible vs Intangible
Let us discuss some of the major differences between Tangible vs Intangible.
- An asset purchased by a company with monetary value and is physically present is called tangible assets. An Asset that doesn’t have materials existence and has a useful life and economic value is called Intangible assets.
- The reduction in the value of tangible assets is called depreciation and in Intangible assets is called amortization.
- Due to the physical presence of tangible assets, it’s easy to convert them into cash. In case of emergencies, it is a little bit difficult to sell Intangible assets.
- Tangible Assets are accepted by the lender as collateral while granting a loan to the company; Intangible assets cannot be used as collateral for the loan.
- The existence of tangible assets is essential for a company’s functioning, whereas the non-existence of Intangible assets will not have that much impact on the company.
- The value of tangible assets adds to the current market value, but the value gets added to the potential revenue and worth in the case of intangible assets.
Tangible vs Intangible Comparison Table
Let’s look at the top 8 Comparisons between Tangible vs Intangible.
| The Basis Of Comparison | Tangible Assets | Intangible Assets |
| Form | Assets have a physical existence. | Assets do not have a physical existence. |
| Liquidation | Generally easier to sell in the market due to their physical presence. | Not that much easier to sell in the market due to its non-existence. |
| Reduction in Value | Assets are depreciated. | Assets are amortized. |
| Risk | Tangible assets can be destroyed by accident, fire, hurricane, or Other disasters, due to such risk it requires insurance protection. | Intangible assets cannot be destroyed by fire or other such disasters but by carelessness or business decision. |
| Collateral | Assets are used as collateral for a loan. | Assets cannot be used as collateral for a loan. |
| Cost | Easy to determine or evaluate the cost of Tangible Assets. | Much difficult to determine the cost of Intangible Assets. |
| Residual Value | Yes | No |
| Examples | Vehicles, buildings, machinery, plant, etc. | Logo, Patent, Copyright, etc. |
Conclusion
Both tangible vs intangible assets are recorded by the company in their books of accounts. Tangible assets are very important for any company for the smooth running of their operations; Intangible assets help in creating the future worth of a company. In order to be successful company needs to have a good combination of tangible vs intangible assets. When comparing the two, both tangible vs intangible assets have their pros and cons, but they impact the functioning of the organization. Intangible assets provide a company with its identity through its strong brand name.
Nowadays, some survey suggests that companies’ value is now mostly generated by intangible assets because of effective usage of knowledge and therefore knowledge management. In this era of knowledge or information economy, the management of intangible assets is a very important competitive advantage and sustainable performance.
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