5 Main Differences Between Tangible And Intangible Fixed Assets

Do you know about tangible and intangible fixed assets? Of course, the term is already familiar to the accounting circles. However, for ordinary people, there are still confusions about what is the meaning of tangible fixed assets, examples, and their application.

In fact, in addition to tangible fixed assets there is also the term intangible fixed assets. Don’t worry, let’s see the full review below!

Each fixed asset has a benefit period of more than one year. These fixed assets consist of two types, namely tangible fixed assets and intangible fixed assets.

In general, the accounting process includes activities to obtain income starting from transactions that are recorded for the first time in the journal to become financial statements.

The accounting process begins with proof of transactions, journals (general journal and special journal), posting to the general ledger, and trial balance.

In addition, there are adjusting journals, work sheets, financial statements, closing entries, post-closing trial balances, and reverse journals.

From the stages above, the balance sheet financial statements consist of current assets, fixed assets, liabilities and capital.

Fixed assets are part of tangible and intangible fixed assets. For this reason, it is necessary for business people to know in detail about tangible fixed assets and examples in the company.

According to the Indonesian Accounting Association (IAA), the definition of fixed assets is assets obtained in a ready-to-use form that can be immediately used in the company’s operations.

However, fixed assets are not for resale because their function is for the normal activities of the company.

Also Read: Types of Current Assets in the Company.

Tangible Fixed Assets

Tangible fixed assets are relatively permanent fixed assets that are used in the normal activities of the company. The term relatively permanent indicates the nature of the asset in question that can be used for a relatively long period of time.

Tangible fixed assets owned by a company can be in various forms. Such as land, buildings, machinery, vehicles, furniture, and so on.

The classification of tangible fixed assets can be divided into 4 groups, namely:

1. Land used as a place to build company buildings.

2. Land improvements such as roads around the company site being built for parking lots and fences.

3. Buildings such as offices, shops, factories, and warehouses.

4. Equipment such as office equipment, factory equipment, machinery, vehicles, and furniture.

Intangible Fixed Assets

In addition to tangible fixed assets, there are also intangible fixed assets that are very important for the company. Intangible assets are a type of company’s fixed assets that cannot be physically stated.

Examples of intangible assets are patents, copyrights, brands, research fees, legality, deferred development fees, and natural resource exploitation rights.

Intangible assets obtained by purchase, but generally acquired because it was developed by the company itself.

The characteristics of intangible fixed assets include:

1. Separability, namely its ability to be separated or divided and can be sold, transferred, licensed, rented, or exchanged through a contract related to assets or liabilities individually or collectively.

2. Emerges from contractual rights or other legal rights, regardless of whether these rights are transferable or separable or from other rights and obligations.

3. Can only be recognized if it comes from external.

Difference Between Tangible and Intangible Fixed Assets

Tangible and intangible fixed assets have some differences. However, the most striking are at least 5 differences between the two, namely:

• In terms of form, tangible fixed assets have a physical form that can be used for business, while intangible fixed assets do not have a physical form, but can only be symbolized.

• In terms of acquisition, tangible fixed assets are obtained from cash purchases, credit, or self-build, while intangible fixed assets are obtained from contractual rights or from the government.

• In terms of depreciationdepreciation of tangible fixed assets cannot be assessed using the depreciation method. While the depreciation of intangible fixed assets can be done by various methods such as straight line method, Double Declining Balance Method, of the year digit method, and so on.

• In terms of age, tangible fixed assets can be unlimited assets, because they can be used continuously. In contrast to intangible fixed assets that have an age limit to be used.

• In terms of recording, the basis of tangible fixed assets is the acquisition price, while intangible fixed assets are based on purchases and company transactions.

As a businessman, it is necessary for you to know the utilization and acquisition of fixed assets in the financial statements. Currently, financial reports can be created easily through Accounting Software . Thus, each asset will be controlled both from the level of depreciation, amortization, and age of use.

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