Difference Between Tangible vs Intangible
In the Financial world or accounting, an asset is any resource which is owned by the business. Analyzing the assets of the company is important for calculating valuation of a company and at the same time, it is important to understand the difference between Tangible vs Intangible Assets of the company and how their value is derived. Assets are nothing but the value owned by a person or business and that can be converted into cash. An asset is an economic resource which is expected to provide future benefits. So in simple words, an asset is something which generates revenue for the owner of a business. Assets are divided into 3 main categories as per below.
- Let discuss the asset category of Physical existence in detail.
In this category, assets are divided on basis of their existence. Assets in this category further divided into two subcategories.
Tangible means anything which we can touch, feel and see. So any tangible assets are assets that have physical existence and its 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 it is purchased for use of business operations and not for sale, Vehicles etc. 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 as compared to 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.
An Intangible Asset is assets that do not have a physical existence. It is not possible to see, touch or feel these assets. Intangible Assets 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.
Intangible Assets further divided into two categories (a) Indefinite (b) Definite. Any Intangible asset which stays longer with the company is called as Indefinite Intangible assets. For example Companies 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.
Intangible assets cannot be used as collateral to raise the loan. The automobile industry has several Intangible assets which include patents, research, and development, brand name etc.
Let’s look at the example of tangible and intangible assets,
Its just example which 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 and etc.
Now let say XYZ person need small part of car for production car so he contacted to person who is having small part production business and he agrees that he will supply small part to XYZ person manufacturing unit but value of that contract is not clear at this moment so this contract is 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 or acquired by a company which is had monetary value and is physically present is called tangible assets. An Asset which doesn’t have materials existence and has a useful life and economic value is called as Intangible assets.
- The reduction in 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 the functioning of a company whereas 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 in the case of intangible assets, the value gets added to the potential revenue and worth.
Tangible vs Intangible Comparison Table
Let’s look at the top 8 Comparison between Tangible vs Intangible
|The Basis Of Comparison Between Tangible vs Intangible||Tangible Assets||Intangible Assets|
|Form||Assets have a physical existence.||Assets do not have 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 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.|
|Examples||Vehicles, Building, machinery, Plant, etc.||Logo, Patent, Copyright, etc.|
Conclusion – Tangible vs Intangible
Both tangible vs intangible assets are recorded by the company in their books of accounts. Tangible assets are very important for any company for a smooth running of their operations, Intangible assets help in creating future worth of a company. In order to be a 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 have their impact on the functioning of the organization. Intangible assets provide a company with its identity through its strong brand name.
Now days some survey suggests that the value of companies is now mostly generated by intangible assets it’s because of effective usage of knowledge and therefore knowledge management. In this era of knowledge or information economy, management of intangible assets is a very important competitive advantage and sustainable performance.
This has a been a guide to the top difference between Tangible vs Intangible Here we also discuss the Tangible vs Intangible key differences with infographics and comparison table. You may also have a look at the following articles to learn more.