Definition

Physical items of value owned by a company, such as machinery, buildings, land, and inventory, that can be seen and touched are called tangible assets.

Description
 

The assets that play a crucial role in the operations and financial health of a business. Here are the key categories and details of tangible assets:

Property, Plant, and Equipment (PP&E):

Your property, plant, and equipment would include the value of land owned by the company, typically used for operational purposes or as an investment. It also includes Physical structures owned by the company, such as offices, factories, warehouses, and retail outlets.

Includes manufacturing equipment, vehicles, computers, furniture, and fixtures used in daily operations.

Inventory:

All materials purchased for use in production processes or resale fall under the inventory category. Goods in various stages of production, i.e., WIP, still need to be finished, and the products that are ready for sale to customers also form a part of the inventory.

Investments in Tangible Assets:

Any property investments the company makes for rental income or capital appreciation, like leased machinery and equipment used in business operations, are included in tangible assets.

Natural Resources:

The company owns oil, gas, coal, and other mineral reserves. Forests and timber resources are owned for commercial use.

Infrastructure Assets:

Utility companies own infrastructure assets such as pipelines, power generation facilities, and telecommunications networks. Infrastructure assets like roads, bridges, railways, and airports.

Importance of tangible assets for a business

Here are five critical reasons why tangible assets are crucial for businesses:

1. Operational Support: The day-to-day functioning of an organisation depends on tangible assets like machinery, equipment, and inventory. They make it possible for companies to effectively create items, provide services, and complete consumer orders.
2. Financial Stability: Tangible assets significantly bolster a company's asset base, enhancing its credibility and stability. They are valuable collateral, facilitating investment opportunities and business expansion through loans and financing.
3. Asset Appreciation and Value: Over time, tangible assets, real estate, and infrastructure can increase. This appreciation raises the total net worth of the business and may result in higher shareholder value.
4. Competitive Advantage: Organisations with substantial material resources frequently have a commanding advantage. They may utilise their physical resources to exploit economies of scale, sustain market leadership, and provide better goods and services.
5. Risk mitigation: Tangible assets hedge against market and financial volatility. They offer material wealth that may be disposed of or pledged as security in an emergency or an economic downturn.

How is a tangible property taxed?

Taxation of tangible property involves several steps and considerations.

Here's a general guide on how tangible property is taxed:

Step 1: Assessment of Property Value:

Determine the value of tangible property, such as real estate, machinery, and inventory, based on market assessments, appraisals, or cost-based methods.

Step 2: Classification and Taxation Basis:

Determine the kind of tangible property (personal or real) by local tax rules and regulations. Recognize the market value, assessed value, or depreciated value used as the tax basis for the assessment.

Step 3: Local Tax Regulations:

Do your homework and become familiar with the local tax laws and rules that control how physical property is taxed, such as inventory taxes, property taxes, and personal property taxes.

Step 4: Filing Requirements:

When submitting the required tax forms and declarations to the appropriate tax authorities, provide accurate information about the property's worth and ownership details.

Step 5: Payment of Taxes:

Pay your property taxes based on the local tax rates and the assessed value. Usually, property tax payments are due once or twice a year.

Step 6: Appeals and Adjustments:

Understand the process for appealing property tax assessments if you believe the valuation needs to be more accurate or fair. Consider adjustments for depreciation, exemptions, or credits available under local tax laws to minimise tax liability.

Step 7: Compliance and Reporting:

Keep accurate property ownership records, valuation evaluations, tax payments, and associated paperwork for compliance and reporting needs.

Step 8: Review and Planning:

Review property tax assessments and valuation techniques regularly to ensure they comply with changing tax regulations and maximise tax-planning techniques.

Step 9: Professional Advice:

To guarantee correct compliance and tangible property tax optimization, consult tax experts, appraisers, or legal counsel knowledgeable in local tax legislation.

Trends that affect tangible assets

These are the trends that affect the tangible assets:

• IoT and Smart Technologies: Integrating Internet of Things (IoT) devices and innovative technologies into tangible assets, such as machinery and infrastructure, enhances asset management capabilities. IoT sensors provide real-time data on asset performance, maintenance needs, and operational efficiency, allowing for predictive maintenance and optimised asset utilisation.
• Automation: Increasing automation in manufacturing and logistics processes reduces the reliance on human labour and improves the efficiency and productivity of tangible assets. Automated systems can monitor, control, and optimise asset operations, leading to cost savings and enhanced asset lifespan.
• Circular Economy Initiatives: The adoption of circular economy principles encourages businesses to extend the life cycle of tangible assets through refurbishment, remanufacturing, and recycling. This trend promotes resource efficiency, minimises waste generation, and enhances the long-term value of tangible assets.
• Data Privacy and Security: Increased focus on data privacy laws and cybersecurity measures impacts tangible assets equipped with digital interfaces and connected technologies. Ensuring robust data protection protocols for IoT-enabled assets safeguards sensitive information and maintains asset integrity in an interconnected digital ecosystem.

Example

Royal Enfield is a well-known Indian brand for its classic and iconic motorcycles. These motorcycles are considered fixed assets, as they are physical property used in the company's operations for an extended period.

FAQ

Difference between intangible and tangible assets.

For a business, tangible assets include machinery or furniture that you can touch. 

It's not physical but valuable, like brand recognition or patents.

Is this true that digital assets must always be tangible?

No, that's not quite right. Digital assets are actually the opposite of tangible assets. They exist only in digital form and cannot be touched, like an e-book, a cryptocurrency, or a website domain