Physical assets are tangible objects with value, such as inventory, equipment, and real estate. They are part of a business’s overall value and can be sold to raise funds. Depreciation and maintenance are expenses associated with physical assets. Intangible assets, like patents, have value but no physical presence.
A physical asset, also known as a tangible asset, is an object that has value. Physical assets are tangible things that are valuable in themselves or that produce value for the owner. This is different from intangible assets, which have value but no physical presence. An example of a physical asset is a car; It is a physical object that can be touched and has a clear value. An intangible asset is something like a patent, which protects intellectual property and therefore helps generate profit, but cannot be physically managed.
For accounting purposes, physical assets are considered part of the value of a business. Over time, the value of a physical asset decreases, and this can be counted as a tax deduction. If a business needs to be liquidated, the physical assets can be sold to quickly raise funds to pay off creditors. Intangible assets are sometimes easy to sell, such as when one company has shares in another, while in other cases it can be difficult to value and sell; Patents are an example of something that can be difficult to value fairly.
Inventory, real estate, equipment, and cash are examples of physical assets. They are considered part of the overall value of the company and must be documented in the financial statements and in the books of accounts. When companies sell or merge, part of the process involves a fair valuation of the company, which includes a determination of the value of all the physical assets the company owns. Companies that default must also be valued in order to determine how much money can be recovered for creditors from an auction of physical assets.
Physical assets, such as equipment, depreciate or decline in value over their lives. This occurs as a result of wear and tear, and also as assets become obsolete; a physical asset like a computer, for example, will quickly be superseded by the next generation of products. Depreciation is considered a business loss and reported as such on tax and other business documents. Eventually, depreciated assets must be replaced, which is another expense to the business. Maintenance of physical assets is another type of asset-related expense that businesses may incur.
Some companies may have relatively few physical assets. A company that offers a service, such as consulting, can only have assets such as office equipment that is used in the work of the company. Other companies, such as manufacturers, may have substantial physical assets in the form of real estate, factories, equipment used in manufacturing, etc.
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