What’s The Difference Between Tangible and Intangible Assets?
Assets include everything your business owns. Tangible assets are generally anything you can physically touch—from inventory to buildings to copying machines. Intangible assets, meanwhile, are anything of value that you can’t physically touch such as trademarks, domain names, and the goodwill you’ve built up around your company’s reputation.
In many cases, a company’s intangible assets are more valuable than its tangible assets. Think of companies whose work involves the development of intangible products such as computer software and technology solutions. Think also of technology-based, social, and community platforms whose value resides mainly in the value of the network, the brand, and the user base.
What’s the difference?
The difference between tangible and intangible assets may seem obvious: if you can touch it, it’s tangible; if you can’t, it isn’t. However, in an era when apps and influence can be more valuable than spark plugs or apples, the difference isn’t always so clear-cut. Here are some of the key distinctions between the two:
Qualities of Tangible Assets
Qualities of Intangible Assets
Can be physically touched
Cannot be physically touched
Easier to value and account for because of clearly defined cost and expected lifespan.
Can be destroyed by flood or fire and need general business or liability insurance
Can be compelling longer-term investments
Can be destroyed by poor decision-making and may need specialized insurance
Tangible assets also fall into two groups: current and fixed assets. Current assets are used in day-to-day business operations and can be used up or converted into cash within a single year. By contrast, fixed assets are larger items like buildings, land, and major equipment that can depreciate over time.
What is Physical and Non-physical property?
In general, it’s easy to distinguish between physical and non-physical properties. But as digital transactions have become the norm, it can become trickier to distinguish between physical and nonphysical property. For example:
Streaming music and videos are considered to be intangible property, but of course, they are valued, bought, and sold every day.
Stock investments are considered to be tangible assets, but they have no physical form; they are simply listed and managed as digital assets.
Cryptocurrencies, like Bitcoin, behave like other investments but for the purposes of Generally Accepted Accounting Principles (GAAP), do not meet the test for being tangible assets.
Depreciation versus Amortization
The value of most tangible assets decreases over time due to age, wear and tear, or obsolescence. This process is known as depreciation, which allows businesses to deduct the declining value of these assets from their taxes. Amortization, meanwhile, is the process of spreading out the cost of an intangible asset (a patent, copyright, etc.) over a period of time.
How is the value determined?
It is usually fairly easy to value a tangible asset: it’s worth whatever the market will bear. For example, a new car in a showroom is worth an agreed-upon amount, and its value depreciates by a set amount from year to year. Of course, some values fluctuate over time: the value of a barrel of oil, for instance, changes constantly, as do the values of stocks—but those values can be researched and verified.