By Shweta Goyal 
Tangible vs Intangible Assets: A Comprehensive Accounting Guide
When preparing financial statements, understanding the difference between tangible and intangible assets — and how each is accounted for — is crucial for accurate reporting and informed decision-making.
Let’s explore both asset types, their accounting treatment, and key differences with examples.
📌 What Are Assets?
In accounting, assets are resources controlled by a business that are expected to provide future economic benefits. Assets are broadly categorized into:
- Tangible Assets: Physical in nature
- Intangible Assets: Non-physical but still valuable
🧱Tangible Assets: Definition & Examples
📘 What Are Tangible Assets?
Tangible assets are physical, measurable resources owned by a business that are used in its operations to produce goods or services. These assets have a clear physical form — meaning they can be seen, touched, and quantified.
They are typically long-term in nature (more than 12 months of expected use) and provide economic benefits over time. Unlike intangible assets, they are depreciated gradually to reflect wear and tear or obsolescence.
📌 Key Characteristics:
- Physical form: Can be touched and seen.
- Used in operations: Help in production, administration, or delivery of goods/services.
- Not for resale: Held for use, not for trading like inventory.
- Long-term use: Life extends beyond one accounting period.
- Subject to depreciation: Except for land (which has indefinite life), all other tangible fixed assets are depreciated over time.
🏗️ Examples of Tangible Assets:
| Category | Examples | Notes |
| Land | Plots purchased for office/factory use | Not depreciated |
| Buildings | Office buildings, warehouses | Depreciated based on estimated useful life |
| Plant & Machinery | Manufacturing equipment, production lines | Core to manufacturing companies |
| Furniture & Fixtures | Chairs, tables, cupboards | Common in offices and commercial spaces |
| Vehicles | Company cars, delivery trucks | Depreciated based on usage |
| Office Equipment | Computers, printers, scanners | Usually fast-depreciating assets |
| Tools & Dies | Cutting tools, molds, jigs | Specialized equipment for industrial use |
🧾 Accounting Treatment:
| Step | Treatment |
| Initial Recognition | Recorded at cost (includes purchase price + installation + delivery + taxes, etc.) |
| Subsequent Measurement | Depreciated over useful life using systematic methods like straight-line or WDV |
| Depreciation | Charged as an expense on P&L and reduces asset’s carrying amount |
| Revaluation (optional) | Some entities opt for revaluation model (allowed under IFRS, restricted under AS) |
📲Intangible Assets: Definition & Examples
📘 What Are Intangible Assets?
Intangible assets are identifiable, non-monetary assets that lack physical substance but provide future economic benefits to the business. Unlike tangible assets like machinery or buildings, intangible assets cannot be touched or seen — but they hold significant value, especially in today’s knowledge and technology-driven economy.
They may arise through purchase, internal development, or acquisition via business combinations, and are either:
- Finite-life (amortized over a specific period) or
- Indefinite-life (not amortized but tested for impairment annually)
📌 Key Characteristics:
- Non-physical: No physical form but still valuable (e.g., a brand name)
- Identifiable: Can be separated from the entity or arise from legal rights
- Used in operations: Contribute to revenue generation and long-term strategy
- Not financial instruments: They are not cash, receivables, or investments
- Valuation complexity: Often difficult to quantify and value due to intangibility
Importance of Intangible Assets:
- Drive competitive advantage (brands, patents, proprietary software)
- Represent core value drivers in modern industries (especially tech, pharma, media)
- Impact valuation and investor confidence
- Influence mergers and acquisitions pricing
🚫 Common Misconceptions:
| Misconception | Clarification |
| All marketing expenses can be capitalized as brand value | ❌ Only if it results in a separately identifiable asset |
| Internally generated goodwill can be shown as asset | ❌ Only purchased goodwill is allowed under AS/Ind AS/IFRS |
| All software costs are intangible assets | ❌ Only enterprise-level software with future benefit is capitalized |
🧾 Accounting Recognition Criteria (as per Ind AS 38 / AS 26 / IAS 38):
An intangible asset is recognized in the financial statements only if:
- Future economic benefits are probable, and
- Cost of the asset can be measured reliably
Note: Internally generated goodwill and most internally created brands are not recognized under accounting standards.
📊 Examples of Intangible Assets:
| Category | Examples | Notes |
| Legal Rights | Patents, Copyrights, Trademarks | Often registered and protect intellectual property |
| Technology | Software licenses, custom ERP systems | Capitalized if benefits extend beyond 1 year |
| Marketing-related | Brand names, Domain names, Trade dress | Usually valued during business combinations |
| Customer-related | Customer lists, Relationships, Loyalty databases | Often recognized in mergers and acquisitions |
| Contractual Rights | Franchise agreements, Licensing deals | Can be valuable depending on exclusivity and legal protection |
| Goodwill | Excess of purchase price over fair value of assets | Arises only in business combinations; tested annually for impairment |
| Research & Development | Capitalized (development phase only under Ind AS/IFRS) | R&D costs are expensed unless strict conditions for capitalization are met |
🧾 Accounting Treatment:
| Step | Treatment |
| Initial Recognition | Recorded at cost only if purchased; internally generated intangibles like goodwill are generally not recognized |
| Subsequent Measurement | Either amortized over useful life or tested for impairment annually (especially for indefinite-life intangibles) |
| Amortization | Charged on P&L to reflect consumption of economic benefit |
| Impairment | If value drops below carrying amount, impairment loss is recorded |
Comparison Table Tangible vs Intangible Assets
| Criteria | Tangible Assets | Intangible Assets |
| Nature | Have a physical form — can be touched, seen, and moved. | Have no physical substance — represent legal or intellectual rights. |
| Examples | Buildings, machinery, vehicles, computers, land, furniture. | Patents, copyrights, trademarks, goodwill, software, licenses. |
| Initial Recognition | At cost, including purchase price + taxes + installation + delivery charges. | At cost, but only if purchased; self-generated ones are usually not capitalized (e.g., goodwill). |
| Subsequent Treatment | Depreciated over useful life using methods like straight-line or WDV. | Amortized over useful life; if indefinite, tested annually for impairment. |
| Valuation | Based on physical condition, residual value, and market trends. | Based on income generation, future cash flows, or market comparables. |
| Sale/Disposal | Fair value is relatively easier to determine; tangible assets have a visible market. | Difficult to estimate fair value; depends on valuation models and future earnings. |
| Impairment Testing | Required only when there are indicators of impairment. | Mandatory annual impairment test for indefinite-life intangibles (e.g., goodwill). |
| Residual Value | Often has a residual/scrap value at the end of its useful life. | Usually has no residual value unless backed by legal enforceability. |
| Revaluation | Revaluation models may be used (as per standards like Ind AS/IFRS). | Rarely revalued unless an active market exists (e.g., broadcasting licenses). |
| Accounting Standard (India) | AS 10 / Ind AS 16 – PPE | AS 26 / Ind AS 38 – Intangible Assets |
Journal Entries: Tangible vs Intangible Assets
| Transaction Type | Tangible Asset (e.g., Machinery) | Intangible Asset (e.g., Software License) |
| 1. Purchase | Dr. Machinery A/cCr. Bank/Vendor A/c(Being machinery purchased and capitalized) | Dr. Software A/cCr. Bank/Vendor A/c(Being software license purchased) |
| 2. Depreciation / Amortization | Dr. Depreciation A/cCr. Accumulated Depreciation A/c(Being annual depreciation charged) | Dr. Amortization A/cCr. Accumulated Amortization A/c(Being annual amortization charged) |
| 3. Sale / Disposal | Dr. Bank A/c (Sale Proceeds)Dr. Accumulated Depreciation A/cCr. Machinery A/cCr. Profit on Sale A/c (if applicable)(Being machinery sold and gain/loss booked) | Dr. Bank A/c (Sale Proceeds)Dr. Accumulated Amortization A/cCr. Software A/cCr. Profit on Sale A/c (if applicable)(Being software sold and gain/loss booked) |
| 4. Impairment (if applicable) | Dr. Impairment Loss A/cCr. Machinery A/c(Being impairment loss recognized on machinery) | Dr. Impairment Loss A/cCr. Software A/c(Being impairment loss recognized on software) |
Comparison of Accounting Standards: Tangible vs Intangible Assets
| 🔍 Criteria | 🧱 Tangible Assets<br>(AS 10 / Ind AS 16 / IAS 16) | 💡 Intangible Assets<br>(AS 26 / Ind AS 38 / IAS 38) |
| Nature | Physical assets used in business (e.g., land, machinery, equipment) | Non-physical assets with value (e.g., software, patents, trademarks) |
| Recognition Criteria | – Probable future benefit- Cost can be measured reliably | – Identifiable- Probable economic benefit- Measurable cost |
| Initial Measurement | Cost includes:- Purchase price- Installation- Taxes- Site prep | Cost includes:- Purchase price- Legal fees- Registration costs |
| Subsequent Measurement | ✅ Cost model (AS 10)✅ Cost or Revaluation model (Ind AS 16 / IAS 16) | ✅ Cost model (AS 26)✅ Cost or Revaluation (rare, under Ind AS 38 / IAS 38) |
| Expense Treatment | Depreciation over useful life | Amortization (for finite life)Impairment (for indefinite life) |
| Impairment Requirement | Only if indicators of impairment exist (AS 28 / Ind AS 36 / IAS 36) | Mandatory for indefinite-life assets or if impairment indicators exist |
| Revaluation Allowed | ✅ Ind AS/IFRS allows revaluation if fair value can be reliably measured | ✅ Only if active market exists (rare in practice) |
| Residual Value | Estimated and considered in depreciation calculation | Usually nil unless legal rights or value exists |
| Review of Useful Life | Annual review mandatory under Ind AS/IFRS | Annual review of life and amortization method required |
| Disclosures Required | ✔ Depreciation method✔ Useful life✔ Movement schedule✔ Revaluation | ✔ Amortization method✔ Useful life✔ Impairment losses✔ Movement schedule |
| Example | Factory Equipment, Furniture, Vehicles | Software License, Brand Value, Copyright |
Conclusion: Tangible vs Intangible Assets
Both tangible and intangible assets are essential pillars of a company’s financial health and operational capacity. While tangible assets — like buildings, machinery, and equipment — represent the physical infrastructure that supports daily business functions, intangible assets — such as software, patents, and brand value — reflect the intellectual and strategic capital that drives growth and innovation.
From an accounting perspective, each asset type follows its own recognition, valuation, and depreciation/amortization rules, governed by distinct standards (AS 10/Ind AS 16 for tangibles and AS 26/Ind AS 38 for intangibles). Accurate treatment ensures compliance, improves financial transparency, and enhances decision-making for management and stakeholders alike.
As businesses become more technology and brand-driven, understanding the correct classification and accounting for these assets isn’t just a compliance requirement — it’s a strategic necessity. Balancing both forms of assets effectively can provide a true and fair view of a company’s worth and long-term potential.