What is the difference between tangible and intangible assets?

Each individual and company generally has certain tangible and intangible assets, and these are often combined to estimate the entity's overall value. Tangible assets are basically physical things like money, structures and machines. Intangible assets are not physical and can include things like concepts, brand popularity, and patents. Intangible assets are sometimes the most important things a company owns, but their values ​​can constantly change, and this can make trust difficult. Tangible and intangible assets are often crucial to a company's survival, but intangible assets are often the most distinctive part of a company and therefore the most valuable.

The most basic tangible assets are things like cash, houses and equipment. Virtually every company and person will have some of them. If a person owns a house and a computer, these things can be seen as his tangible assets. For a company, tangible assets can include things like factories, storefronts, investments, and other similar properties.

Intangible assets include customer ideas, concepts and position. For example, a fast food franchise may develop a reputation for having good hamburgers. If the majority of the public feels that the company makes the best hamburgers, that reputation becomes an important intangible asset. Without it, the company could be worth a lot less, but it's not something with a physical presence.

Accountants often struggle to find ways to value the business, and much of this stems from difficulties in determining the overall values ​​of different tangible and intangible assets. In general, intangible assets tend to be much more difficult to value. For example, if an accountant tried to value the hypothetical fast-food restaurant mentioned above, he might have trouble determining exactly how to evaluate the company's reputation. It can be difficult for him to say exactly how much he is worth now and how much he will be worth in the future. At the same time, you may find it relatively easy to assign a dollar value to tangible assets such as restaurants, cash, and food processing facilities.

In an attempt to deal with this common disparity in the valuation of various tangible and intangible assets, some accountants have developed some methods. One of the most common approaches is to use a reference number and determine how much of the company's current profit comes from the intangible asset. For example, the hypothetical accountant in the example above could determine what most fast food restaurants do in hamburgers and compare it to their company's average. He would then assign the difference in value to the asset "hamburger stellar reputation". Determining how that asset might change over time can be more difficult and relies on simple methods that are not specific to the asset in question.