Most of us are familiar with the term asset. This term is used to denote those economic resources that are owned and controlled by a person or a firm. One of the important aspects of an asset is that it should be of some economic value, i.e., it can be converted into cash.
Money, along with other valuables that can be converted to money, are classified as assets. There are two major types of assets - tangible and intangible assets.
What are Intangible Assets?
Examples of assets include real estate, car and other vehicles, cash, accounts receivable, jewelry, office equipment, machinery in industry, insurance, trademarks, copyrights, and patents. All these are considered assets. In short, assets owned by a person or a firm, are those economic resources that can be converted into cash.
As mentioned before, there are two types of assets, called tangible and intangible. While assets like land, cash, building, and equipment, can be seen, and are real and actual; there are certain assets like copyrights and patents, that cannot be seen and measured physically.
The first category of assets that are physically seen and perceived are called tangible assets, and those in the second category are called intangible assets. Even though, intangible forms are of real value, they cannot be physically touched or measured.
While it is easy to record and value tangible assets, it is not that easy, in case of intangible assets. Even though, intangible assets can be described as those resources that cannot be physically felt and measured, they include lots of things, that may not be normally considered as assets.
Most of these assets cannot be directly converted into cash, but affects the finances in an indirect way. The concept of intangible assets is very complex. It can be explained with the help of some examples.
As mentioned earlier, a copyright, trademark, or a patent may not be considered as assets, ordinarily. However, think about the brand recognition of a particular company, which is mostly generated by its logo and brand name. Whatever maybe the product, a brand name holds an important role in the income generated by a company.
So, intellectual property is an example of intangible asset. The expertise of the employees of a firm isn't a physical item that can be measured, but it is a vital, intangible asset for the firm. Even the customer database, the relation with the clients, customer satisfaction, reputation of the company and the technology are counted as intangible assets.
Legal and Competitive types
Apart from the types of intellectual property, there are other things classified as intangible assets and are divided into legal and competitive types. The legal intangible assets consist of intellectual property that confers some legal rights on the holder; brand recognition, customer satisfaction, and expertise of employees, come under competitive assets.
By now, you must have understood that valuing intangible assets can be a tough task. Such valuation is based on the future monetary effects of such assets. Intangible assets may not be physically sensed but they are highly valued and preserved by companies. Earlier, tangible assets formed a major part of the economy, but now, almost 50% are intangible ones.