Tangible assets include resources such as production plants, equipment, land and buildings, office equipment and any device it needs for its everyday function.
For those who are not familiar with business management or accounting, the difference between a (production) cost and investing in an asset is hard to understand and it is often common to see people who are developing business plans to mix them. The difference between each is:
- Investment in tangible assets: acquisition of “things” that are used by the company without being immediately consumed by production. Rule of thumb: being a fixed asset, tangible assets must stay within the company for at least one year.
- Costs (of production): items that are consumed in production and, hence incorporated into the new product or service.
Because, tangible assets are items that are not consumed in the production process, rather, they are used by the production process, the investment (acquisition) of these assets must not go to an cost account and inherently to the income statement. Instead, the Tangible assets are presented on the Balance Sheet by their net value.
The net value of a tangible asset is represented by its acquisition value minus the depreciations (if the asset is revalued, its value will integrate the result of the valuation). It is through the depreciation that an asset will lose its value through time.