July 19, 2012
Tangible and Intangible Assets
Tangible and intangible assets include everything listed under total assets on the balance sheet. “Assets consist of resources a business owns,” (Kimmel, Weygandt, & Kieso, 2010, p. 12). Tangible assets would include land, land improvements, buildings, and equipment. These types of asset would be classified as fixed assets. “Intangible assets are rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance,” (Kimmel, Weygandt, & Kieso, 2010, p. 414). Types of intangible assets include patents, copyrights, trademarks, franchises, licenses, and goodwill. These assets would be classified as long-lived assets. Depreciation
“Depreciation is the process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner,” (Kimmel, Weygandt, & Kieso, 2010, p. 402). Depreciable assets include land improvements, buildings, and equipment because the usefulness of the asset decreases over its useful life. Land’s usefulness remains constant over its useful life and is not considered a depreciable asset. A depreciable asset also can be considered obsolete when it becomes outdated before it physically wears out.
Computing depreciation involves cost, useful life, and salvage value. Cost is the original asset’s value. Useful life is the expected productive life of the asset to the owner. Salvage value is the asset’s value at the end of the useful life. Depreciation is usually computed using the straight-line method, the declining-balance method, or the units-of-activity method. Straight-line is the most widely used method in the United States. “Under the straight-line method, companies expense an equal amount of depreciation each year of the asset’s useful life,” (Kimmel, Weygandt, & Kieso, 2010, p....