A physical asset, also known as a tangible asset, is an object which has value. Physical assets are tangible things which are either valuable in themselves, or which produce value for the owner. This is different from intangible assets, which have value but do not have a physical presence. An example of a physical asset is a car; it is a physical object which can be touched and which has a clear value. An intangible asset is something like a patent, which protects intellectual property and therefore helps to generate profits, but cannot be physically handled.
For accounting purposes, physical assets are considered part of the value of a business. Over time, a physical asset declines in value, and this may be counted as a tax deduction. If a business needs to be liquidated, the physical assets can be sold to raise funds quickly for the purpose of paying creditors. Intangible assets are sometimes easy to sell, such as when a company holds stock in another, while in other cases they can be challenging to value and sell; patents are an example of something which can be tricky to value fairly.
Inventory, real estate, equipment, and cash are all examples of physical assets. They are considered part of the overall value of the business, and must be documented on financial declarations and in account books. When businesses sell or merge, part of the process involves a fair valuation of the business, which includes a determination of the value of all physical assets held by the business. Businesses which go into default must also be valued for the purpose of determining how much money can be recovered for creditors from a physical asset auction.
Physical assets like equipment depreciate, or decline in value, over their lifetimes. 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 outstripped by the next generation of products. Depreciation is considered a loss for the business and is declared as such on tax documents and other business paperwork. Eventually, depreciated assets need to be replaced, which constitutes another expense for the business. Maintenance of physical assets is another type of asset-related expense which businesses can incur.
Some businesses may have relatively few physical assets. A company which offers a service, such as consulting, may only have assets like office equipment which are used in the company's work. Other companies, such as manufacturers, can have substantial physical assets in the form of real estate, factories, equipment used in manufacturing, and so forth.
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.