Tangible assets are physical assets that have a physical form and can be seen, touched, and quantified.
These assets are used in the operations of a business to generate revenue and are expected to provide economic benefits to the company over a period of time.
Tangible assets have a finite useful life and can be depreciated (for accounting purposes) over their estimated useful life.
Examples of tangible assets include:
Property, Plant, and Equipment (PP&E):
This category includes land, buildings, machinery, vehicles, furniture, and other physical assets used in the production or operations of the business.
Inventory consists of raw materials, work-in-progress goods, and finished goods held by a company for the purpose of manufacturing, distribution, or resale.
Equipment refers to tools and machinery used to perform specific tasks in the production or service delivery process.
Furniture and Fixtures:
Furniture and fixtures are assets like desks, chairs, shelves, and other furnishings used in offices or stores.
Land and Buildings:
These represent real estate assets owned or leased by the company for various purposes, such as offices, factories, warehouses, or retail stores.
Vehicles used for business purposes, such as delivery trucks, company cars, or machinery transport vehicles.
Computers and Technology:
Computers, servers, and other technology hardware and software used for business operations.
Improvements made to leased properties that enhance the functionality and appearance of the space.
Tangible assets are recorded on a company’s balance sheet at their historical cost, which includes the purchase price, acquisition expenses, and any necessary installation costs.
Over time, these assets are systematically depreciated (for accounting purposes) to reflect their gradual wear and tear, obsolescence, or loss of value due to usage.
The depreciation of tangible assets is an important aspect of financial reporting, as it allows businesses to spread the cost of the assets over their useful life, matching the expense with the revenue generated from their use.
Tangible assets are significant components of a company’s net worth and are critical for its day-to-day operations and overall financial performance.