1. Explain the meaning of the terms "tangible" and "intangible" and discuss how these terms are used in describing assets.
Tangible assets are the economic resources of a firm, whose existence can be physically felt or perceived.
Examples: Inventory, land and buildings and plant and machinery.
Intangible assets are non physical economic resources and rights, which carry a value with them and confer some advantage on the firm in the market place.
Examples: Goodwill, copyrights, patents and trademarks.
In accounting, it is only the tangible assets that are found in the balance sheet. Intangible assets do not find a place in the balance sheet of the firm. But while calculating the value of the firm in the market, the intangible assts are also taken into account.
2. Discuss the advantages of establishing a line of credit
A line of credit is a commitment from the bank to lend the firm up to a certain amount to meet various financial needs. It provides an opportunity for the firm to establish access to credit even before the exact expenditure decisions are finalized. It is more flexible than a loan, which makes finance available for a specific purpose. It can be used for different purposes. It need not be drawn at a time like a loan, but can be used as and when the need arises. The line of credit is thus the most flexible and comfortable financing arrangement for a firm to take care of its present and future needs as well as contingencies.
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