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11.1 Distinguish between Tangible and Intangible Assets

What are Long-Term Assets?​

Long-term assets are assets that:

  • Have a useful life of more than one year
  • Are used in business operations
  • Provide future economic benefits
  • Are not intended for resale

Tangible Assets​

Tangible assets are physical assets that can be seen and touched.

Examples:

  • Land
  • Buildings
  • Equipment
  • Vehicles
  • Furniture
  • Machinery
  • Computer hardware

Characteristics:

  • Physical existence
  • Can be depreciated (except land)
  • Subject to wear and tear
  • Can be insured
  • Have salvage value

Intangible Assets​

Intangible assets are non-physical assets that provide future economic benefits.

Examples:

  • Goodwill
  • Patents
  • Trademarks
  • Copyrights
  • Franchises
  • Software
  • Licenses

Characteristics:

  • No physical existence
  • May be amortized (if finite life)
  • May have indefinite life
  • Harder to value
  • May be difficult to sell

Comparison​

FeatureTangible AssetsIntangible Assets
PhysicalYesNo
DepreciationYes (except land)Amortization (if finite)
ExamplesEquipment, buildingsPatents, goodwill
ValuationEasierMore difficult
Useful LifeUsually determinableMay be indefinite

Luxembourg Context​

Common Tangible Assets for SMEs:

  • Restaurant equipment
  • Vehicles
  • Office furniture
  • Computer equipment
  • Retail fixtures
  • Manufacturing machinery

Common Intangible Assets for SMEs:

  • Software licenses
  • Trademarks
  • Customer lists
  • Franchise rights
  • Patents (less common for SMEs)

Luxembourg Compliance Note​

In Luxembourg:

  • Tangible assets: Class 2 (Immobilisations)
  • Intangible assets: Class 2 (Immobilisations Incorporelles)
  • Must be properly classified
  • Must be valued correctly
  • Must follow depreciation/amortization rules
  • Must comply with PCN requirements

Think It Through​

Why is land not depreciated while buildings are? What makes land different from other tangible assets?