These assets are typically considered long-term assets because they are expected to provide economic benefits to the owner for more than one year.
Examples of tangible asset
Buildings
Land
Machinery
Equipment
Vehicles
Inventory
Cash
Importance of tangible assets
1. They are a source of value creation for businesses, as they can be used to generate revenue or reduce expenses.
2. They can be used as collateral for loans, which can help businesses access funding for growth and expansion.
3. Their value can be depreciated over time for tax purposes, which can result in significant tax savings.
4. They provide a physical representation of a company’s worth, which can be important for investors and stakeholders.
5. They are a crucial component of a business’s financial profile and can contribute significantly to its success.
Types of tangible assets
1. Fixed assets: These are assets that are used in the production or sale of goods and services, such as land, buildings, machinery, and equipment. Fixed assets are typically long-term assets that have a useful life of more than one year.
2. Current assets: These are assets that are expected to be converted to cash within one year or less, such as inventory, accounts receivable, and cash. Current assets are typically used to support day-to-day operations and are an important indicator of a company’s liquidity.
3. Physical commodities: These are raw materials or products bought and sold, such as metals, grains, and oil. Businesses typically use physical commodities as inputs for their production processes or as a way to hedge against price fluctuations.
How to manage tangible assets
1. Managing inventory by keeping track of all tangible assets, including their location, quantity, and condition, is essential to effective asset management.
2. Regular maintenance and repair to ensure that tangible assets continue to function properly and retain their value.
3. Calculate depreciation costs to ensure that the value of the asset is reflected accurately on the balance sheet.
4. Plan for replacement and disposal to ensure that replacement assets are of similar or better quality and that the disposal process is handled properly to minimize any negative impact on the environment or the business.
5. Manage risks by identifying potential risks, such as theft or natural disasters, and implementing measures to mitigate those risks, such as installing security systems or obtaining insurance coverage.
Key point
A tangible asset is an asset that can be touched, seen, and measured. It is any physical component of a business that is essential for its overall success.
Tangible assets help in the organization and effective operations of a business and improve its financial profile and overall success.
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