What are tangible assets? Definition and meaning
Tangible assets include both fixed assets such as land, machinery, equipment, vehicles and buildings, and current assets, such as cash, stock and inventory.
Tangible assets contrast with intangible assets, which have no physical form (brands, copyrights, patents, goodwill, etc.)
Tangible assets have a material or physical form, i.e. anything that can be touched.
When tangible assets have an expected lifespan of more than 12 months, depreciation is applied to them. This depreciation process is used rather than allocating the whole expense to one year. An expense is a specific cost during an accounting period.
The English word ‘tangible’ originates from the Latin word ‘tangere’, which means ‘to touch’.
Tangible assets are depreciated
In a company’s balance sheet, tangible assets will usually be listed under PP&E (property, plant and equipment).
In accountancy, tangible assets are depreciated or (less frequently) depleted, while intangible assets are amortized.
Tangible assets such as books, toys, wine, gold, stamps and furniture have become categorized as an asset class in their own right. Many rich people will aim to include these assets as part of their asset portfolio.
This has fuelled the rapid growth in the number of tangible asset managers over the past couple of decades.
“Assets that have a physical existence, or give the holders definite set of financial rights are classified as tangible assets, as opposed to intangible assets such as patents and goodwill. Examples of tangible assets include land, machinery, bank deposits and investments.”
Tangible assets, as opposed to intangible assets, can be destroyed by fire, earthquakes, hurricanes, other natural disasters, as well as accidents. However, they can be used as collateral to raise loans, and are more readily converted into cash in emergencies.
Video – What are tangible assets?